A hedge fund that rode the AI mania to $45 billion in early July has surrendered roughly two-thirds of that capital in a matter of weeks, forcing its prime brokers, Bank of America, Goldman Sachs and JPMorgan, to scramble for cash to meet margin calls. The collapse of Situational Awareness, run by 24-year-old Leopold Aschenbrenner, is the most violent unwind yet of a trade that treated every semiconductor, memory maker and data-center landlord as a one-way ticket.
The leverage that built the peak
The fund’s strategy was straightforward: own the physical layer of the AI build-out and bet against software companies that might be disrupted by it. That meant massive long positions in SK Hynix, Nebius Group, SanDisk, Micron and CoreWeave, all of which have fallen more than 35 percent this month alone. At the same time, short bets on names like Adobe moved sharply the wrong way. The combination turned a $45 billion peak into a 67 percent July drawdown, even though the fund remains up about 80 percent for the year.
The shorts fought back
Aschenbrenner’s client letter acknowledges the damage and accepts responsibility, but it also points a finger at short sellers who he says targeted the very shares he owned. That is a familiar refrain when a crowded long book becomes a source of liquidity for the rest of the market. The fund’s prime brokers, now tasked with raising cash against deteriorating collateral, are effectively the counterparties to that unwind, a reminder that leverage works both ways, and usually fastest on the way down.
No more borrowed money
The most consequential line in the letter may be the promise to run the public portfolio without leverage while the firm “draws the lessons from these developments.” If enforced, that constraint caps the fund’s capacity to re-enter the trade at anything like its former size. It also signals that the AI hardware thesis, however intact on a multi-year view, cannot survive the volatility of a mark-to-market month when every hyperscaler’s capex forecast is being second-guessed.
The trade is now a bet on discipline
What happens next depends less on Nvidia’s next earnings print than on whether Aschenbrenner can resist the urge to lever up again once the dust settles. The AI frenzy that lifted his fund to $45 billion was built on a plausible premise, chips, memory, power and real estate are scarce, but the execution confused a thematic tailwind with a risk-free position. The market has now priced the difference.