Hedge funds were quick to identify investment opportunities in chipmakers and other artificial intelligence hardware companies, and these bets have just delivered the best single-month performance for stock-picking funds in over two decades.
Funds such as Point 72, led by Steve Cohen, Whale Rock Capital Management, and Seligman Investments all posted impressive gains in April, partly benefiting from significant stock price increases in semiconductor companies and their upstream and downstream equipment manufacturers.
An industry index compiled by research firm Pivotal Path shows that April marked the best month for stock-picking funds since December 1999, with a monthly gain of 6.5%.
Within the index focusing on the technology sector, April saw a surge of 10.3%, setting a record for the best single-month performance in the index's 28-year data history.
The rapid adoption of AI programming tools and intelligent agents has generated massive and robust demand for computing power, benefiting everything from Intel's central processing units to SanDisk's memory chips.
Microsoft, Alphabet, Meta Platforms, and Amazon plan a combined $670 billion in capital expenditures this year, with the majority allocated to building data centers equipped with high-end chips. The anticipated AI end-user demand projected by major tech companies continues to drive up chip prices and has prompted firms to enter into long-term fixed-price contracts with suppliers.
Boosted by these trends, several semiconductor stocks have doubled in value this year; last week, Samsung Electronics joined the trillion-dollar market capitalization club. Many funds' April gains alone have surpassed the annual performance of most funds.
According to informed sources, Whale Rock Capital Management's public equity portfolio, managed by Alex Sacerdote, surged approximately 39% in April, with core profits coming from heavily weighted positions in SanDisk, South Korean memory chipmaker SK Hynix, and Japanese memory chipmaker Kioxia.
Sacerdote stated at the Sohn Investment Conference on Tuesday, "Artificial intelligence is the most computing power-intensive application in history. The chip shortage is evident, and we are in a golden age for hardware. Companies that were once overlooked are now premium assets."
The semiconductor industry is known for its strong cyclicality, with periods of shortage often followed by overcapacity.
During the pandemic, consumers heavily purchased silicon-based electronic products like laptops and smartphones, leading to a surge in chip stocks. Subsequently, as demand normalized and new industry capacity went idle, the sector entered a prolonged downturn.
Informed sources noted that Point 72's flagship fund rose approximately 4.5% in April, marking its best single-month performance in over five years.
Turion, a hedge fund co-founded by Cohen and fund manager Eric Sanchez focusing on the AI sector, surged 15% in April.
Against the current macroeconomic backdrop, the overall performance of funds is particularly notable: ongoing conflicts, rising prices and inflation expectations, and a reduced likelihood of future Federal Reserve rate cuts. However, even after experiencing minor fluctuations late last year, the AI trade theme has withstood multiple headwinds and continues to lead the market.
Hedge funds' overweight positions in the semiconductor sector have now reached their highest level in the past decade.
Morgan Stanley data shows that the net allocation to semiconductors in hedge fund portfolios was only 5.5% a year ago but has since risen to 20%. The bank estimates that nearly two-thirds of hedge funds' long portfolio gains last month were contributed by stocks in the AI supply chain.
The strong performance of hedge funds has continued into May: Morgan Stanley data indicates that, as of last Thursday, global hedge funds averaged a gain of approximately 1.4% for the month.
The bank informed clients that hedge funds' strong start to May is largely due to their overweight positions in assets related to the broader AI theme.
Comments