Hedge funds significantly increased their short positions in U.S. stocks as concerns grew that artificial intelligence could disrupt traditional business models. According to a client report from Goldman Sachs' prime brokerage team, the nominal volume of single-stock short selling last week reached its highest level since records began in 2016. The team, citing flow data from January 30 to February 5, noted that selling activity was double the volume of buying. Worries that AI will transform the economy contributed to a volatile week on Wall Street. A sell-off was triggered after Anthropic introduced new tools designed to automate work tasks across multiple industries. Last week, 164 stocks in the software, financial services, and asset management sectors saw a combined market value loss of $611 billion. Overall, hedge funds were net sellers of U.S. equities for the fourth consecutive week, with the selling intensity being the strongest since the so-called "Freedom Day" in early April of last year. The Goldman Sachs team indicated that the information technology sector experienced the heaviest selling pressure, with outflows ranking as the second largest over the past five years. The software sub-sector accounted for roughly 75% of the net selling within the tech space. Hedge funds' total net exposure to software stocks fell to 2.6%, while the long-short ratio dropped to 1.3, both reaching record lows. Semiconductors and semiconductor equipment, along with IT services, were among the few tech-related areas that saw net buying during the week. A rise in the semiconductor stock index last week further widened the divergence between chip stocks and software stocks. This divergence has been expanding in recent months as investors sell off sectors perceived as vulnerable to AI disruption. Outside of technology, hedge funds continued shifting toward defensive sectors. The healthcare sector was the most net-bought group last week and has now become the top destination for hedge fund inflows year-to-date, surpassing the industrial sector. Although stocks rebounded on Friday due to bargain hunting, the Nasdaq 100 index still recorded its worst weekly performance of the year.