US Hedge Funds Rotate Away from Magnificent Seven Stocks in Q3 2025

This analysis is based on the Reuters report [1] published on November 14, 2025, which revealed that major Wall Street hedge funds systematically reduced their exposure to Magnificent Seven stocks during the third quarter of 2025. The institutional rotation marked a significant shift from Q2 2025’s bullish positioning on Big Tech, with funds taking profits after strong gains and reallocating to sectors including application software, e-commerce, and payments companies [1].

The regulatory 13F filings disclosed substantial reductions across multiple hedge funds:

• Bridgewater Associates
  slashed its NVIDIA stake by nearly two-thirds to 2.5 million shares and cut its Alphabet position by over 50% to 2.65 million shares [1]
• Tiger Global
  reduced its Meta Platforms stake by 62.6%, while
  Lone Pine Capital
  cut Meta by 34.8% [1]
• Coatue Management
  reduced NVIDIA holdings by 14.1% to 9.9 million shares [1]

Despite this broad rotation, some institutions took contrarian positions.

increased its Apple stake several-fold, while increased stakes in NVIDIA, Apple, and Microsoft [1][2]. also revealed a new $4.3 billion Alphabet stake [1].

The rotation occurred during a strong Q3 2025 market period, with the S&P 500 rising 8.10% and NASDAQ Composite gaining 11.68% [0]. However, performance among the Magnificent Seven varied significantly:

• Alphabet
  : +38.33% (strongest performer) [0]
• NVIDIA
  : +19.38% [0]
• Amazon
  : +0.03% (essentially flat) [0]
• Meta
  : -0.34% (relative weakness) [0]

Current valuations as of November 14, 2025, suggest the rotation was partially driven by valuation concerns [0]:

• NVIDIA
  : $190.17 (P/E: 54.18) - premium valuation
• Alphabet
  : $276.41 (P/E: 27.26) - more reasonable
• Meta
  : $609.46 (P/E: 26.98) - moderate
• Amazon
  : $234.69 (P/E: 33.15) - elevated but reasonable
• Apple
  : $272.41 (P/E: 36.47) - higher valuation

The hedge fund movements indicate a strategic rotation toward sectors perceived as offering better value or growth potential, including application software (Adobe, Dynatrace), payments companies (Fiserv), e-commerce platforms (Etsy), industrial materials (Cleveland-Cliffs), and healthcare (Cigna, Elevance Health) [1].

The data reveals significant divergence in institutional approaches. While major hedge funds were reducing mega-cap tech exposure, value-oriented investors like Berkshire Hathaway were establishing new positions, and some quantitative funds maintained or increased their tech exposure [1][2]. This suggests different investment horizons, risk appetites, and valuation methodologies among institutional investors.

The concentration of hedge fund selling pressure in mega-cap tech stocks highlights potential market structure vulnerabilities. Given these stocks’ high weighting in major indices, coordinated institutional rebalancing could create amplified market movements and liquidity challenges during periods of stress [0][1].

The rotation may signal a maturation of the AI investment boom that drove much of the 2023-2024 tech rally. As noted in the Reuters report, “lofty valuations have started to descend” from the AI boom, suggesting institutional investors are becoming more selective in their AI-related investments [1].

the concentration of hedge fund selling pressure in mega-cap tech stocks may create short-term volatility, particularly around earnings announcements and macroeconomic data releases.

potential valuation compression in the Magnificent Seven if institutional rotation continues, which could significantly impact market indices given these stocks’ high weighting [0][1].

Key risks include:

• Liquidity concentration
  in mega-cap stocks potentially exacerbating price movements
• Index fund dominance
  amplifying moves in the Magnificent Seven
• Correlation risk
  if these stocks move together due to institutional rebalancing
• Regulatory developments
  affecting Meta, Google, and other tech giants [2]

The rotation creates potential opportunities in:

• Application software and payments companies
  receiving new institutional capital
• Healthcare and industrial sectors
  where funds like Discovery Capital are establishing positions
• Contrarian plays
  in Magnificent Seven stocks for investors with different time horizons

1. Q4 2025 13F filings
   to track whether the rotation continued or reversed
2. Upcoming earnings reports
   , particularly NVIDIA’s, which could impact broader market sentiment [2]
3. Interest rate environment
   changes affecting growth stock valuations
4. AI infrastructure spending
   trends supporting current tech valuations

The Q3 2025 hedge fund rotation represents a significant institutional shift away from Magnificent Seven stocks toward sectors perceived as offering better value or growth opportunities. The movement appears driven by profit-taking after strong Q3 gains, particularly in Alphabet (+38.33%), and concerns about elevated valuations, especially in NVIDIA (P/E: 54.18) [0][1].

However, the divergent approaches among different institutional investors suggest no consensus on the appropriate valuation levels for mega-cap tech stocks. The backward-looking nature of 13F filings means current positioning may differ significantly from Q3 data [1].

The institutional rotation highlights the importance of monitoring market structure risks, particularly given the high concentration of market cap in a few technology stocks and the potential for coordinated institutional rebalancing to create amplified market movements [0][1].