Buffett and Soros Lead Major Tech Sell-Off Amid Market Correction Fears

Recently, notable fund companies have been significantly offloading large-cap tech stocks.

Warren Buffett and George Soros have slashed holdings in the "Tech Seven" (Alphabet, Apple, Tesla, Microsoft, Amazon, Meta, and Nvidia) and increased cash positions in anticipation of a market correction.

While recent U.S. inflation data has alleviated recession fears, leading investors to return to the stock market, this has pulled stocks back from a deeper correction in the past week. However, signs indicate that a more substantial dip may be imminent.

The "Tech Seven" saw substantial sell-offs before the market turned pessimistic about AI's economic prospects. The Bloomberg "Tech Seven Price Return Index" had risen by 17% in the first two quarters of this year. Yet, the Nasdaq 100 Index dropped 14% in the four-week period starting on July 10. Stan Druckenmiller, former chief strategist to George Soros, noted in May that the AI boom might be "overhyped" in the short term.

Soros's fund reduced its Alphabet holdings by approximately $58 million and Amazon by about $15 million, while Druckenmiller's Duquesne Family Office sold over 1.5 million shares of Nvidia.

Billionaire hedge fund manager David Tepper's Appaloosa Management cut back on holdings in Amazon, Microsoft, and Meta. Wildcat Capital Management, founded by TPG Capital's David Bonderman, liquidated its Meta holdings, selling stocks worth $24 million. Iconiq Capital, managing Mark Zuckerberg's money, sold $2.5 million in Apple shares. Kemnay Advisory Services, managing billionaire Allen Parker's wealth, reduced its stakes in Nvidia, Apple, Microsoft, Meta, Alphabet, and Amazon.

Berkshire Hathaway has bolstered its cash reserves to a record $189 billion in the second quarter, seemingly as a defensive maneuver, preparing for a substantial market pullback.

Historically, the S&P 500 Index experiences a 20%+ correction approximately every 18 months. These corrections allow market valuations to reset from overvalued levels, providing opportunities for investors to reenter the market. Buffett has openly expressed his view that the market may be overvalued, suggesting that holding cash until an opportunity arises is a wise approach.

Moreover, Soros has been strategically hedging against market downturns by purchasing put options to protect his portfolio. Recent filings show that Soros's fund expanded its existing S&P 500 hedging position. The portfolio now includes put options on Apple (AAPL), a high-yield corporate bond ETF (HYG), and the S&P 500 ETF (SPY), amounting to $500 million in total.

Soros's fund also established put positions on the VanEck Semiconductor ETF (SMH) and the iShares 20+ Year Treasury Bond ETF (TLT), totaling $101 million. His bearish bets on the bond market suggest possible liquidity issues that could affect global markets.

Buffett revealed he had sold half of his Apple shares, hinting at potential peak valuations and broader tech sector bubble risks. The recent significant declines in the Nasdaq 100 index's tech stocks are attributed to various factors, including recession fears, uncertainties in AI investment returns, and recent unfavorable U.S. employment data.

In early August, some major investment institutions on Wall Street had already begun reducing their tech giant holdings.

While companies like Alphabet and Meta are heavily investing in AI, investors await tangible returns from these investments. Several hedge funds also trimmed their stakes in American chipmaker Intel amid profitability challenges.

This shift in investment sentiment underscores a growing skepticism about the tech sector's short-term prospects and hints at a broader market recalibration. Investors are now diversifying beyond the "Tech Seven," signaling a cautious approach amid potential market volatility.