CalPERS Cuts Big Tech Exposure as AI Fears Intensify Neocloud Sell-Off

California’s public pension fund is shifting more capital toward private equity as concerns grow about elevated technology stock valuations and whether the massive spending on artificial intelligence will generate sufficient returns.

CalPERS, the world’s fifth-largest pension fund, is reducing its holdings in major U.S. technology companies amid growing doubts about the durability of the AI investment boom and the high prices investors are paying for tech stocks, the Financial Times reported.

The pension fund, which oversees more than $600 billion in assets, cut its combined direct shareholdings in the so-called Magnificent Seven by 26% during the first half of the year, according to the FT’s analysis of regulatory filings. The group includes Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla.

The Roundhill Magnificent Seven ETF (MGAS) has gained 7% so far this year. Apple has led the advance with a 34% increase, while Nvidia has risen 12%. Meta, Alphabet and Tesla, meanwhile, have recorded losses over the same period.

CalPERS is expanding its allocation to private equity to diversify its portfolio across a wider range of businesses and lessen its reliance on a small group of dominant publicly traded companies.

Anton Orlich, the fund’s deputy chief investment officer, told the FT that public equity valuations appeared expensive. He also suggested that major technology companies could deliver weaker performance than other asset classes and investments.

The portfolio shift comes as concerns about AI-related spending and financing risks continue to grow. Elon Musk’s SpaceX, which raised $40 billion in debt to purchase graphics processing units for AI computing, has added to the debate. Musk warned that financing opportunities had largely dried up for companies without significant revenue beyond AI data centers, predicting that the neocloud sector would undergo consolidation.

Selling pressure persisted during Monday’s premarket session, with neocloud companies including CoreWeave, Cipher Digital and IREN all seeing their shares decline.