Hedge funds start to trim crowded AI bets, leading bank says

Hedge funds start to trim crowded AI bets, leading bank says Proactive Tue, June 23, 2026 at 4:59 PM GMT+2 2 min read UBSG. SW Hedge funds have begun to cut their exposure to artificial intelligence stocks, the most crowded corner of equity markets, UBS has found. The Swiss bank's strategists drew the conclusion after meeting scores of clients across the United States and Europe in recent weeks.

They reported that positioning across all types of US investors remained heavily concentrated in the AI spending complex, spanning technology, semiconductors, power and capital goods. What has shifted, UBS said, is confidence rather than belief. Investors increasingly recognise the crowding and the "same bus" risk that comes when too many funds hold the same trade.

UBS said the market still believed in the AI story over the long term, but that tactical conviction was eroding at the margin. It flagged the danger that spending forecasts stop rising as activity hits a "speed limit", leaving the supply chain short of upgrades and crowded positions exposed. Hedge funds, the bank noted, are rotating first, with the search for the next trade already underway.

UBS strategist Gerry Fowler said some funds were recycling risk into fresh areas as US economic growth accelerated. A broadening into US cyclical shares, particularly industrials and financials, may have begun, he said. UBS has also upgraded healthcare, including obesity drugmakers, though it conceded these holdings did not satisfy investors wanting more cyclical exposure.

Appetite for European shares among American investors remained limited, the bank found. UBS said reduced geopolitical risk, following an agreement to reopen the Strait of Hormuz, should be viewed as a one-off lift rather than a trigger for lasting outperformance. Within Europe, it identified a split between defensively positioned core investors, who have lagged the recovery, and more adventurous Scandinavian funds tilted towards AI.

The clearest point of agreement was banks. UBS said investors remained happy to stay overweight the sector, drawn by high dividends, share buybacks and still-solid profitability.