In terms of risk capital deployed, semiconductors are disproportionately important After a tough few weeks for the stock market, the equity exposure of hedge funds has fallen to the point where JPMorgan feels confident the downside is now limited. Global markets strategist Nikolaos Panigirtzoglou discovered that there has been a close correlation between the performance of semiconductor stocks, best represented by the VanEck semiconductor exchange-traded fund . and the performance of equity hedge funds. In the upswing for the semiconductor sector in the second quarter of 2026, the ETF and the exposure tracked each other closely.
However, given very tight risk limits for hedge funds, when semis began to correct, forced de-risking exaggerated the drawdown. Why humanoid robots are so hard to mass-produce Play video: Why humanoid robots are so hard to mass-produce The sector’s recent decline suggests to Panigirtzoglou and team that much of the long positioning has been unwound, including that of momentum investors such as the commodity trading advisors who constitute a lot of the daily market turnover. Your daily dive into MarketWatch, featuring story spotlights, market movers and more you Need To Know to start your day.
I would like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. The JPMorgan flows and liquidity note, published Wednesday, tells investors then, that while the near-term headwinds are in place still, these positioning adjustments might contain the downside now.
The report also addresses another fear besetting the market of late which is the funding concerns surrounding neoclouds. These specialized AI infrastructure providers who rent compute for AI workloads have been front and center of the markets’ focus in the last week with well-publicized troubles for the likes of CoreWeave and the disastrous IPO of Korea’s Elice. JPMorgan strategists aren’t flapping about this, though.
While funding is an issue to some extent, the strategist argues demand for compute is so high, the passing of increased financing costs through to end customers is possible. Even if the financing becomes unviable, he doubts the timing mismatch between capex and revenue won’t derail the cycle. He offers two reasons: first, neocloud capex demands of $80 billion or so this year is a fraction of the overall $1.8 trillion blown in 2026 and so it’s quite possible bigger tech companies like the hyperscalers who have better access to funding can absorb that.
Secondly, the tech sector overall is running a financing surplus of around $400 billion this year because cash flows are exceeding capex. One final point that the JPMorgan piece highlights is the increasing importance of semiconductors generally not just in terms of its weighting in global market indices but even more so in terms of its consumption of risk capital. To illustrate the point: information technology accounts for 28% of the MSCI All Cap World Index but its share of risk capital — the amount of their capital hedge funds devote to betting on it — is 40%.
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