The playbook for winning -- and losing -- the AI trade is becoming clear.
Jon Thompson, a tech portfolio manager at Point72, generated hundreds of millions of dollars in investment gains in the first two months of the year, people familiar with the matter said. Among his profitable positions: bets on hardware companies behind the artificial-intelligence build-out and bets against the software makers that AI might one day render irrelevant.
RGM Capital, another hedge-fund firm that invests in stocks, found itself on the wrong side of this trade. It is closing its doors after nearly 23 years in the business.
The market euphoria over AI that propelled stocks to new highs over the past three years is now giving way to fears about how the technology might ripple across the economy. The S&P 500 is hovering near record levels, but beneath the surface, individual stocks have swung sharply as investors try to assess which companies might be most at risk for extinction.
Software stocks including Salesforce and Workday slid in early February after updates to Anthropic's AI model, Claude, raised the prospect that their services could soon be easily replaced. Just weeks later, the reassessments of which companies might be hit hardest by an AI revolution intensified after a viral memo envisioned a future where AI wipes out white-collar jobs. Meanwhile, shortages of memory chips and other material inputs to the AI supply chain are causing rallies elsewhere.
Big moves like that create rich opportunities for stock pickers. The spread between the 50 best and 50 worst performing S&P 500 stocks in the first two months of the year reached the widest levels since at least 2005, Morgan Stanley told hedge-fund clients last month. A broad hedge-fund index from research firm PivotalPath gained 3.5% this year through the end of February.
While AI is a dominant story line on Wall Street, big hedge funds are dealing with other crosscurrents, from fears in the debt markets to geopolitical tensions. Last week, firms got a reminder of how quickly the tide can turn. U.S. stock-picking hedge funds lost about 1.5% last Tuesday in the wake of the U.S.-Israeli strikes on Iran, their most painful session since President Trump's "Liberation Day" in April 2025. That helped to trim their gains so far this year to just 0.7% as of March 5, according to Morgan Stanley. Funds betting on software also got a dose of relief in the past two weeks after the sector bottomed in late February.
Even before software's steep selloff last month, hedge funds as a group had been fleeing the sector, and were loading up on hard tech stocks, especially those of semiconductor companies.
Bank of America's stock-trading team summed up the moves in a note to clients in early February: "Semis > Software has been the YTD (and frankly 2025) trade."
Investors riding that trade include Analog Century Management, a hedge-fund firm run by physicist Val Zlatev that invests in hard tech sectors and has nearly $3 billion in assets under management. Its main hedge fund is up about 17% this year through February, people familiar with the matter said. Positions in semiconductor capital equipment stocks such as Applied Materials and memory-chip makers such as Micron Technology did well, in addition to short bets against makers of so-called edge devices.
The publicly traded stock portfolio of Whale Rock Capital Management, a Boston-based hedge-fund firm that manages over $10 billion in assets, is up about 14% this year through February, people familiar with the matter said. Its largest holdings include memory-chip maker Sandisk and Celestica, a manufacturer of networking and other equipment for AI data centers.
A one-size-fits-all approach rarely works with trades on big, sprawling sectors such as technology. At Point72, Thompson's team also profited from shorting certain hardware names and betting on software stocks that have long-term promise, one of the people familiar with his performance said. The hundreds of millions of dollars in gains he and his team generated are as much as a top portfolio manager at the hedge-fund firm led by Steve Cohen might generate over an entire year.
Among those stung by the software selloff was Gavin Baker's Atreides Management, one of last year's top performers. A slide in shares of Unity Software contributed to a nearly 14% loss in Atreides's public-stock portfolio in the first two months of 2026, people familiar with the matter said. An Atreides portfolio that also holds stakes in private companies, including SpaceX and AI chip maker Cerebras Systems, gained 7% over the same time, one of the people said.
Informatic Capital, a fund run by former Tiger Global analyst Colter Van Domelen, lost about 23% over the first two months of the year, people familiar with the firm said. The firm focuses on high-growth internet, software and financial-tech stocks, and doesn't do any short selling.
"The market is now pricing in significant disruption from the growth in AI in a uniform manner across our entire opportunity set," Informatic wrote in a recent note to investors.
Clients are standing by the firm, which had put up annualized returns of more than 22% from its 2023 inception through 2025, one of the people said. Informatic raised additional capital in March.
Others won't emerge from the so-called SaaSpocalypse, Wall Street's moniker for the gloom around software-as-service firms.
RGM Capital, based in Naples, Fla., is a longtime investor in software stocks. The $3 billion investment firm has owned a concentrated portfolio of publicly traded growth companies, including software makers Dynatrace, ServiceNow and Procore. It doesn't short stocks.
RGM's main fund lost money this year, people familiar with it said. Its executives concluded that AI's disruptive potential meant there is greater uncertainty for the software businesses it invested in. That was one reason RGM decided to start winding down in recent weeks, the people said.
