Just as technology bulls were rebuilding their positions, a fresh dispute over the future of artificial intelligence has suddenly intensified, putting the market to the test at the most inopportune moment.

According to Goldman Sachs prime brokerage data, hedge funds have been net buyers of US TMT stocks in 10 of the past 11 trading sessions, with long buying over the last two weeks registering at the 97th percentile of the past five years and hitting the highest level since June 2025. Nearly all TMT sub-sectors recorded net buying, led by semiconductors and semiconductor equipment, interactive media and services, and IT services.

However, an AI policy controversy that emerged over the weekend quickly disrupted this momentum. Anthropic CEO Dario Amodei called for slowing the pace of frontier model development and urged government intervention to restrict open-source competitors, a request President Trump promptly declined. The news sent shockwaves through markets, with South Korea's SK Hynix shares falling 6% and SoftBank plunging 11%.

Goldman Sachs trader Lee Coppersmith stated bluntly in his weekly report: "Taken together, this weekend brings new risk to freshly rebuilt tech longs at the worst possible time."

Hedge Funds Return to Tech at Fastest Pace in 15 Months

Goldman Sachs prime brokerage data shows hedge fund net buying in the US TMT sector has now extended into a second consecutive week, with information technology and communication services ranking as the two largest buying destinations across all US sectors, both dominated by long buying while short flow remained relatively subdued.

Looking at cumulative buying over the two-week period, this round of long position building is the fastest since June 2025, sitting at the 97th percentile of five-year historical data, indicating a notable rebound in risk appetite as the September wave of meetings gets underway. Meanwhile, hedge fund leverage structures have also seen subtle adjustments. US long-short fund gross leverage fell 1.6 percentage points to 206.9% (at the 20th percentile of the one-year range), while net leverage rose 1.7 percentage points to 50.2% (at the 6th percentile). The fundamental long-short ratio (market cap weighted) increased 2.2% to 1.64 (at the 26th percentile over one year).

Macro Products Face Heavy Selling While Credit and Small-Cap ETF Shorts Surge

While heavily positioned in tech stocks, hedge funds have simultaneously engaged in substantial net selling of macro products (combined index and ETF positions, typically used to hedge single-stock exposure), marking the largest selling week since April 3 of last year. The ratio of short sales to long buying stands at 3.2-to-1, deviating more than two standard deviations from the one-year average. Short interest in US-listed ETFs grew 7.2% in a single week, the largest weekly increase in six months, up 5.2% sequentially, concentrated mainly in credit and small-cap equity ETFs. Despite this week's sharp rise in short positions, overall short exposure in macro products remains below the year-to-date high, which coincided with momentum trades peaking in June.

AI Controversy Intensifies at a Critical Moment, Asian Tech Bears the Brunt

At the heart of this upheaval is Anthropic CEO Dario Amodei's latest stance: he advocates slowing the pace of frontier model development and calls on governments to restrict competition from open-source models. Trump subsequently made clear his refusal to intervene, and the collision of positions has sharply raised market uncertainty over AI regulatory direction. The event first triggered shockwaves in Asian markets, with Asian AI stocks falling across the board on Monday. SK Hynix dropped over 6%, while SoftBank tumbled as much as 11%. Given that hedge funds have just rebuilt tech long positions at the fastest pace in 15 months, the timing of this controversy is particularly sensitive. Lee Coppersmith's wording reinforces this assessment, as the risk facing newly established tech long positions in the near term is clearly rising.

FOMC Decision and 20-Year Treasury Auction Key Variables Ahead

Looking to the week ahead, Goldman Sachs data indicates that market pricing currently implies roughly 90% odds of a Fed rate cut in September, making it the core event on the macro calendar. Last week's stronger-than-expected core CPI reading was interpreted by markets as a "ripping off the band-aid" prelude to rate cuts. The Bank of England (Thursday) and Bank of Japan (Friday) will also deliver their respective rate decisions. Additionally, Tuesday will see a $13 billion 20-year Treasury auction, which warrants close attention. With tech long positions being rebuilt amid intertwining AI policy uncertainties, divergence in the market's short-term direction is intensifying.