Hedge funds recently holding NVIDIA face a difficult day
Rokos Capital Management had a good year last year, The fund reportedly returned 34% in calendar 2024 and in the year to March it paid someone £110m. Hopefully they saved that money because 2025 may not be quite so clement.
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Rokos is one of many hedge funds to have been a fan of NVIDIA, whose stock is currently down 11.5% in pre-market trading. Rokos' most recent 11F quarterly filing report for the period ending late September '24 indicates that it was holding $146m in NVIDIA stock at the time.
It could, however, be worse: funds like Hudson Bay and Sands Capital Management had billions in NVIDIA stock at their last filings. Stock in other popular tech firms, like Broadcom and Taiwan Semi Conductors is also falling.
The trigger for the rout is Deepseek, the Chinese AI start-up which is a year old but which last Monday released an open-source model (DeepSeek-R1) which it said cost less than $6m to develop and required a mere 10,000 NVIDIA chips. By comparison, Bloomberg reported last year that Bloomberg and Amazon had been buying 50,000 NVIDIA chips each per year. NVIDIA's exponential share price growth was based upon its sales accelerating. Now that's being called into question. However, there are suspicions that Deepseek may be understating its NVIDIA chip holdings.
NVIDIA bets worked well for hedge funds until now. Last February, the Financial Times reported that Rokos made $60m as the stock rose 48%. Funds like Arrowstreet Capital, which owned $2.1bn of NVIDA stock when the FT was writing, had made a potential $1bn. Arrowstreet is based in Boston. Rokos is based in London. It's not clear whether the funds mentioned still own NVIDIA stock now.
In the absence of effective hedges, the tech stock rout could result in hedge fund job losses. There are recent precedents. Singapore-based Southern Ridges Capital cut numerous jobs last year after losing money in August.
At best, today could mark a blip in NVIDIA's soaring stock price if the more efficient use of its chips democratizes rather than decimates demand. At worst, today could mark the end of the US tech stock bubble, with wider ramifications than hedge funds' NVIDIA holdings. The FT reported last year that firms like Blackstone, Pimco, Carlyle and BlackRock had lent $11bn to tech companies, using NVIDIA chips as collateral.
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