Hedge Funds Shift Focus: What's Next?

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In Q4 2024, hedge funds reduced their stakes in the Magnificent Seven, with all but Tesla seeing a net decline in ownership.

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The market has, so far, proven them right. The Magnificent Seven have underperformed the S&P 500 in 2025, with every stock in the group down year-to-date.

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One reason for the slow start: Increased investor skepticism over capital expenditures tied to AI monetization. Meta, Microsoft, Amazon, and Alphabet are slated to spend a cumulative $325 billion in capex this year, a 46% increase year over year.

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While the Magnificent Seven remains the largest part of hedge fund portfolios, funds have shifted toward healthcare (+1.35%) and communication services (+1.18%). UnitedHealth Group saw the biggest increase in hedge fund investors, while the Walt Disney Company also emerged as a rising favorite.

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Hedge funds are also focusing on “Phase 3” AI companies—those generating revenue through AI-enabled products. Salesforce and ServiceNow emerged as the top choices in this category last quarter.

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While the Magnificent Seven cools off, hedge funds are exploring fresher opportunities.