Leopold Aschenbrenner's AI-focused hedge fund grew to $45 billion in 18 months and collapsed in 3 weeks — a textbook case of leverage destroying conviction.
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Situational Awareness sells $16B portfolio to Citadel after 4x leverage blowup
Leopold Aschenbrenner's AI-focused hedge fund grew to $45 billion in 18 months and collapsed in 3 weeks — a textbook case of leverage destroying conviction.
Citadel acquired the entire public equity portfolio of Situational Awareness after the AI-focused hedge fund blew up under 4x leverage, wiping out months of gains in a forced liquidation that handed Ken Griffin's firm a portfolio of deeply discounted AI stocks.
"Anyone who has experience in public markets could somewhat easily see this was One Big Trade," said Michael Dempsey, managing partner at Compound, an investment firm. "There probably should have been way better views on risk besides buying index-level puts."
The fund, founded by former OpenAI researcher Leopold Aschenbrenner, swelled to $45 billion at the start of July after generating a 439% return from January through June. It deployed 4x leverage on a concentrated strategy: long AI infrastructure stocks including SK Hynix, Nebius Group, Sandisk, Micron and CoreWeave, while shorting software companies. When Korean memory chip stocks slumped in July, margin calls triggered a death spiral. All four of the fund's largest disclosed holdings fell more than 35% in July alone. Its short positions in software names such as Adobe also moved sharply against it.
The forced liquidation — executed by prime brokers including Goldman Sachs, JPMorgan Chase and Bank of America — handed Citadel a portfolio of AI stocks at distressed prices. The very stocks that Situational Awareness was forced to sell promptly rebounded 15% to 25% the following day, with Sandisk, Nebius and CoreWeave each surging more than 20% and Micron gaining about 15%. The fund, now shrunk to under $10 billion, retains its private investments including a roughly $5 billion stake in Anthropic. Aschenbrenner, 25, is scheduled to marry Avital Balwit, Anthropic's chief of staff, this weekend.
The Leverage Trap
The collapse illustrates a recurring pattern in financial history: correct thesis, wrong execution. Aschenbrenner's 165-page "Situational Awareness" essay published in 2024 accurately predicted a trillion-dollar buildout of AI computing infrastructure. Recent earnings from Microsoft, Nvidia and AMD confirmed the thesis — Azure cloud revenue grew 43% in the latest quarter, and AMD raised its 2030 AI chip total addressable market estimate to $220 billion from $120 billion.
But 4x leverage left no room for the inevitable drawdowns that occur in any hot market. "Even if his investment thesis is spot on in the long-term, leveraged positions remove wiggle room to ride out the massive selloffs that inevitably occur in a hot market," said Tim Culpan, a former Bloomberg columnist.
Wall Street's Role
The blowup echoes the 2021 collapse of Bill Hwang's Archegos Capital Management, where total return swaps allowed funds to build massive hidden leverage through prime brokers. Goldman Sachs, JPMorgan and Bank of America marketed the fund's long and short positions for sale before Thursday's open, according to people familiar with the matter. The brokers had been working with the fund to meet margin requirements in an orderly fashion.
Shay Boloor, chief market strategist at Futurum Equities, described the sequence as "the story of 2026." Citadel had been pushing surprise-rate-hike fears just days before the AI trade collapsed, he noted, forcing the leveraged fund to unload near the lows. "This is why the stock market is the greatest game on Earth," Boloor said.
What Comes Next
Aschenbrenner's fund will continue operating with its private portfolio, and the founder retains support from some in the tech community. "He'll be back and successful," said investor Martin Shkreli, who called the episode "the saddest, most Machiavellian thing" while acknowledging Aschenbrenner's brilliance.
For the broader market, the episode raises questions about leverage in the AI trade and whether prime brokers have tightened lending standards since Archegos. The stocks that Situational Awareness was forced to sell — Sandisk, Nebius, CoreWeave and Micron — all surged after Citadel's block purchase, suggesting the selling was technical rather than fundamental.
This article is for informational purposes only and does not constitute investment advice.
[1] The market doesn't believe in "myths": Did the "AI Stock God" die from leverage?[2] Wall Street Lunch: AI-Focused Hedge Fund Offloads $16B Equity Portfolio To Citadel Amid AI Stock Slump[3] What smart people are saying about the Situational Awareness stock sell-off to Citadel[4] NVDA, AMD, ORCL, MU and other stocks in focus — Situational Awareness reportedly sells bulk of public portfolio to Citadel[5] AI investor Leopold Aschenbrenner forced to unwind all public stock positions after steep losses, sources say
