Analysts at Jefferies highlighted two Magnificent 7 stocks that have become favorites of hedge funds.

According to Jefferies, hedge funds have leaned into communication services and tech stocks and increased their risk exposure to above-average levels.

The firm revealed that both Amazon (NASDAQ:) and Microsoft (NASDAQ:) were over 10% each of the Hedge Fund holdings as of February 29, while Apple (NASDAQ:) and Tesla (NASDAQ:) were still net short.

"After meaningfully lowering their weight to Secular Growth in January, hedge funds went right back to Secular Growth," said analysts at Jefferies. "They added nearly 3% to the cohort by boosting Comm Services and Tech. They did lower their weight in Health Care, but the sector is still the largest OW."

Meanwhile, cyclicals were trimmed, with energy's net short position increasing and discretionary stocks getting cut.

"What was Secular Growth's gain was the Cyclicals' loss, as about 3% was trimmed back from this cohort," added analysts at Jefferies. "It represented 47% of the portfolio vs. 50% a month prior, with much of the weight loss occurring in Discretionary. The sector was cut by close to 4%, but it still OW relative to its weight in the S&P 500."