Hedge funds have already de-risked their positions in the AI stock market, according to JPM, leaving their exposure significantly below earlier levels. This could lead to retail support stabilizing the market through November, allowing hedge funds to rebuild positions from late November onward. This would introduce a second wave of demand into a market where momentum and leverage have already been reset. Retail investors may be providing the bridge for institutional re-risking to provide the next leg higher.

The de-risking efforts of hedge funds have been a key driver of the recent market volatility, as they adjust their positions in response to changing market conditions. By reducing their exposure to AI stocks, hedge funds have effectively removed a significant source of downward pressure from the market. This could lead to a stabilization of prices and potentially even a minor upswing, as retail investors step in to fill the void left by the absence of hedge fund buying pressure.

However, it is important to note that the de-risking efforts of hedge funds are not the only factor influencing the AI stock market. Other market participants, such as institutional investors and individual retail investors, also play a significant role in shaping market sentiment and driving price movements. As such, the next leg higher in AI stocks is unlikely to be solely driven by hedge fund re-risking, but rather a combination of factors, including continued retail support and potential institutional re-risking.