Semiconductor and AI hardware stocks surge, hedge funds post best performance in years in April

Source: Global Market Report

The hedge fund community was quick to spot investment opportunities in chip manufacturers and other artificial intelligence hardware companies, and this wave of bets has just delivered the best single-month performance for stock-picking funds in over two decades.

Hedge funds such as Steve Cohen's Point 72, Whale Rock Capital Management, and Seligman Investments all achieved impressive returns in April, partly benefiting from surges in the share prices of semiconductor and upstream and downstream equipment manufacturers.

According to an industry index compiled by research institution Pivotal Path, April was the best month for stock-picking funds since December 1999, with the index rising 6.5% for the month.

For fund indices focused on the technology sector, gains were even more pronounced, up 10.3% in April—a new record for the highest single-month performance in the 28-year history of the index.

The rapid adoption of AI programming tools and intelligent agents has driven robust and massive demand for computing power, benefiting everything from Intel's central processing units to Western Digital's memory chips.

This year, Microsoft, Alphabet, Meta Platforms, and Amazon plan a combined $670 billion in capital expenditures, the vast majority of which will be invested in building data centers with high-end chips. Anticipated AI terminal demand among the major tech firms continues to push chip prices higher and is prompting enterprises and suppliers to sign long-term price lock contracts.

Boosted by this trend, several semiconductor stocks have doubled in price this year; last week, Samsung Electronics even joined the trillion-dollar market cap club. For many funds, single-month returns for April have already surpassed the annual performance of most funds.

Informed sources revealed that Whale Rock Capital, managed by Alex Sacerdote, saw its public equity portfolio soar about 39% in April, with heavy positions in Western Digital, South Korean memory chip maker SK Hynix, and Japanese memory chip firm Kioxia becoming core profit drivers.

At the Sohn Investment Conference on Tuesday, Sacerdote stated: "Artificial intelligence is the most compute-intensive application in history. The chip shortage is clearly visible. We are in a golden age of hardware. Companies that no one paid attention to before have now become prime assets."

The semiconductor industry has always been highly cyclical, with periods of shortage often quickly followed by overcapacity.

During the pandemic, consumers snapped up silicon-based electronics such as laptops and smartphones, prompting chip stocks to soar; subsequently, as demand normalized and new industry capacity sat idle, the sector fell into years of prolonged correction and stagnation.

According to insiders, Point 72’s flagship fund rose about 4.5% in April, marking its best month in more than five years;

The AI-focused hedge fund Turion, established by Cohen in partnership with fund manager Eric Sanchez, saw a 15% gain in April.

Against the current macro backdrop, overall fund performance is particularly striking: war between the US and Iran continues, prices and inflation expectations are rising, and prospects for future Federal Reserve rate cuts are declining. But even after minor fluctuations late last year, the AI investment track has remained resilient, leading the market despite multiple headwinds.

Hedge fund overweight positions in the semiconductor sector have now reached their highest levels in the past ten years.

Data from Morgan Stanley shows: at the same point last year, semiconductors accounted for just 5.5% of hedge fund portfolios on a net basis, but that figure has now risen to 20%. The firm estimates that nearly two-thirds of last month’s hedge fund long portfolio returns came from equities in the AI industry chain.

The strong performance of hedge funds has continued into May: Morgan Stanley data shows that, as of last Thursday, global hedge funds were up an average of about 1.4% for the month.

The firm told clients that the hot starts for hedge funds in May were largely due to overweight exposure to AI-related assets.