Hedge funds are reportedly reducing their exposure to technology megacaps amid a significant sell-off, according to Goldman Sachs. The firm indicated that with interest rate cuts being repriced and increasing uncertainty regarding political regimes, it is prudent for investors to take profits on momentum gains as a market rotation occurs. Goldman Sachs has noted that AI valuations appear stretched, and without forthcoming earnings reports, the risks may outweigh potential rewards. This shift in strategy marks one of the largest hedge fund de-grossing moves in approximately 18 months, as funds pivot towards small-cap stocks and heavily shorted equities. Concerns are also rising regarding the high capital expenditures (capex) of major tech firms such as Amazon, Meta, Alphabet, and Microsoft, with experts questioning whether these investments will yield adequate returns.