Goldman’s Garrett Warns Investors Are Reducing Exposure to Mag 7 Stocks

Brian Garrett, head of equity execution on Goldman Sachs’s Cross Asset Sales desk, has been flagging the same signal for months, and the data behind it is now impossible to ignore. Goldman’s prime brokerage desk shows clients unwinding gross positions into all-time highs, with the largest weekly gross unwinding in seven months.

Simultaneously, Goldman’s analysis of 509 large-cap mutual funds managing $3.9 trillion in equity assets found these funds were 723 basis points underweight the Magnificent 7 as of Q1 2026, up from 710 basis points underweight in Q4 2025. That gap is not noise. It is a structural repositioning of institutional capital away from the stocks that drove the S&P 500’s gains for the past three years.

What Garrett’s Desk Is Actually Seeing

Goldman’s prime brokerage data captures how hedge funds and institutional desks are actually positioned, not what they say publicly.

Goldman Sachs reported the largest weekly gross unwinding by clients in seven months. The heaviest de-grossing landed in consumer discretionary and tech, the third-largest such unwind in five years. That is not trimming at the edges. It is the engine room being lightened precisely as the index sits at record levels.

Goldman’s Garrett sees investors dialing back tech exposure into H2 $QQQ $IXIC https://t.co/FCEoQ5Ql0i

— Investing.com News (@newsinvesting) July 2, 2026

The Mutual Fund Underweight: 723 Basis Points

The Goldman note on mutual fund positioning confirmed what the prime data implied.

• Large-cap mutual funds increased their underweight position in the Magnificent 7 to 723 basis points in Q1 2026 from 710 basis points in Q4 2025. 
• Funds reduced ownership in every single Mag 7 name on a net shares basis in Q1
• The largest reduction was in Alphabet (NASDAQ: GOOGL), despite its strong YTD performance
• AAPL, NVDA, GOOGL, and AMZN outperformed year-to-date while MSFT, TSLA, and META lagged, creating sharp dispersion inside the group 
• Only 29% of large-cap active funds outperformed their benchmarks below the 37% historical average

Where Funds Are Rotating Instead

The rotation out of Mag 7 is not a cash move; it is a move to different AI exposure.

Mutual funds hold their lowest software exposure since at least 2012, while semiconductor allocations remain below the peak levels seen in Q1 2023 and Q2 2024. Meanwhile, six of the top 20 mutual fund additions in Q1 came from Goldman’s AI Data Centers basket, including Arista Networks, Corning, SanDisk, and Coherent. 

The trade is clear: sell the AI software story, buy the physical AI infrastructure. Arista Networks (NASDAQ: ANET), Corning (NYSE: GLW), and Coherent (NYSE: COHR) are absorbing the capital that used to sit in Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT).

The April Rebalance: $25 Billion in Supply

April 2026 added a mechanical dimension to Garrett’s warning.

The April rebalance roughly $25 billion to sell sits in the 83rd percentile versus all flows over the past three years, and in the 92nd percentile going back to 2000. That is a top-decile supply event landing directly into a market at all-time highs. For comparison:

• November 2020: $20 billion to sell
• April 2020: $20 billion to sell
• May 2025: $19 billion to sell

April 2026’s $25 billion was the largest monthly sell program on record when quarterly rebalancing is stripped out.

Goldman’s Broader 2026 Market View

Despite reducing exposure to the Magnificent Seven, Goldman Sachs remains bullish on the broader market. The firm expects the S&P 500 to reach 8,000, implying about 9% upside from current levels. Goldman sees AI infrastructure spending as the key earnings driver through 2027, with hyperscale tech firms projected to increase capital expenditure to $905 billion. Nvidia remains Goldman’s top semiconductor pick despite the rotation away from Mag 7 stocks. 

Final Thoughts

Garrett said institutional investors are rotating within AI rather than exiting it, shifting from mega-cap software stocks to AI infrastructure plays. Goldman’s AI data center basket has gained nearly 60% year-to-date, outperforming many Mag 7 holdings. With Q2 earnings approaching and the S&P 500 target at 8,000, the coming weeks will test whether the strategy pays off. 

Disclaimer:

The content shared by Meyka AI PTY LTD is solely for research and informational purposes. Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice