Hedge funds are reallocating capital away from crowded AI-related positions toward healthcare, financials and energy after a sharp July reversal in the AI trade, according to Goldman Sachs. The bank said July marked one of the sharpest hedge-fund de-grossing episodes of the past decade, while its VIP basket of the most popular long positions suffered its worst one-month performance relative to the S&P 500 in more than 20 years. Goldman said funds trimmed positions in several AI stocks, including many semiconductor companies and most mega-cap technology names, after entering the second quarter heavily exposed to the theme. The Goldman Sachs Hedge Fund Trend Monitor covers 991 funds with combined gross equity exposure of $5.4 trillion and found that net overweight positions in healthcare, financials and energy were at or near decade highs in early Q3 2026. Healthcare represented 19% of total hedge-fund net exposure and had a 962-basis-point overweight versus the Russell 3000 Index. Financials reached their highest net overweight since before the 2008 financial crisis, while energy reached its highest since 2015. Information technology remained the largest long-portfolio sector at 25%, but its 15% net exposure was a record underweight relative to its 33% Russell 3000 weight, largely because of the benchmark's heavy technology concentration. Hedge-fund turnover reached its highest level since 2021 in the second quarter, with technology turnover at its highest since 2011, as managers reshaped AI positions. Gross leverage, net leverage and AI exposure have declined from their Q2 peaks but remain above longer-term averages. U.S. equity long/short hedge funds had returned 10% through mid-August, according to Goldman.