The semiconductor trade that has dominated equity markets this year has entered a far more volatile phase, forcing hedge funds and institutional investors to reassess one of the market’s most crowded AI-driven themes, according to a report by Bloomberg. For hedge funds, the reversal has exposed the risks of concentrated positioning in one of the year’s strongest-performing sectors. The broader correction has prompted investors to question whether semiconductor stocks can continue to lead global equity markets. While many hedge funds reduced exposure or de-risked positions, retail investors aggressively bought the dip, directing a record $12bn into semiconductor-focused exchange-traded funds during the final week of July, according to Bloomberg Intelligence. Even after a late-month rebound, the semiconductor index remains well below its June peak, with more than half of its constituent stocks still down at least 25% from recent highs.