AI Tech Stocks Plunge: 25-Year-Old Star Fund's High-Leverage Gamble Backfires, Citadel Steps In to Spark Market Rebound

In July 2026, U.S. technology stocks experienced severe volatility, with AI-related stocks rapidly falling from their peaks. Many investors initially feared that the artificial intelligence (AI) investment boom might be cooling down. However, as market information emerged, it became clear that this downturn was not just due to fundamentals or profit-taking, but rather a chain reaction triggered by a liquidity crisis at a highly leveraged fund.

Leopold Aschenbrenner, a 25-year-old fund manager who rose to prominence over the past two years, and his firm 'Situational Awareness' fund, had heavily invested in the AI hardware supply chain using high leverage. During the July market correction, reports surfaced that the fund faced margin calls and was on the verge of being forcibly liquidated by brokers.

More intriguingly, immediately after news broke that the large hedge fund Citadel had taken over part of its holdings, AI-related stocks—which had been plummeting—rebounded sharply the next day. This led the market to speculate that the July tech stock selloff was primarily caused by forced selling from a large fund, not a fundamental shift in the AI industry's prospects.

From OpenAI Researcher to Wall Street Darling: The Rapid Rise of an AI Investment Myth

Aschenbrenner has gained significant recognition in the AI community in recent years.

He graduated from Columbia University with degrees in mathematics and economics, joined OpenAI’s Superalignment team, and later left the company amid controversy over leaking internal plans.

After leaving, he published a long-form article titled 'Situational Awareness,' arguing that AI would rapidly accelerate global computing infrastructure development over the next decade, with the U.S. government and corporations investing heavily in data centers, advanced semiconductors, high-bandwidth memory (HBM), storage devices, and power infrastructure.

This narrative perfectly aligned with the AI bull market, quickly making him a focal point in both tech and investment circles.

In 2024, he launched the Situational Awareness fund, initially managing around $200 million in assets. However, as AI-related stocks continued to surge, the fund’s performance climbed rapidly.

Market sources indicate that by the end of June 2026, the fund’s year-to-date return peaked at 439%, with assets under management swelling to approximately $45 billion.

Its strong performance attracted significant institutional capital, and many investors began treating its holdings as a barometer for AI investment trends. The market even dubbed him the 'Warren Buffett of the AI era.'

Heavy Bets on AI Infrastructure Supply Chain: High Concentration Becomes Major Risk

However, behind the fund’s astonishing performance was an extremely concentrated investment strategy.

According to market reports, the Situational Awareness fund allocated nearly all its capital to AI infrastructure-related companies, including Nebius (YNDX-US), SanDisk (SNDKV-US), Micron Technology (MU-US), CoreWeave (CRWV-US), and SK Hynix (SKHY-US)—all key players in the AI hardware supply chain.

In addition to high portfolio concentration, the fund borrowed heavily from major U.S. investment banks to increase capital efficiency. Market estimates suggest its maximum leverage ratio reached approximately 4x.

Furthermore, to hedge against systemic market risks, the fund established large short positions, betting against traditional software companies like Adobe (ADBE-US), anticipating that AI would erode their competitive advantages. The fund aimed to create a market-neutral strategy by 'going long on AI hardware and short on legacy software.'

However, this seemingly robust hedging structure ultimately became a key factor in the fund’s downfall.

AI Stock Pullback Turns into Liquidity Crisis: Long and Short Positions Both Suffer

In early July, U.S. tech stocks began to see profit-taking, with the Nasdaq Index pulling back from its highs.

Initially, the market viewed this as a normal correction after AI stocks had risen too far, too fast. But the decline quickly accelerated.

Reports emerged that AI stocks heavily held by the Situational Awareness fund had nearly all plunged. SK Hynix fell close to one-third in a month, while SanDisk’s stock price halved from its late-June peak. Smaller AI-related stocks like Nebius and Bloom Energy (BE-US) dropped over 40%, while large-cap tech stocks like Oracle (ORCL-US) and AMD (AMD-US) also retreated by about 20%.

More surprisingly, the prices of software companies like Adobe—shorted heavily by the fund—rose instead of falling, causing the fund to suffer losses on both long and short positions.

This 'longs falling, shorts also losing' scenario is rare in hedge funds and led to a rapid deterioration in the fund’s net asset value.

Margin Calls Pile Up: The Fund Enters a Death Spiral

Faced with continued price declines, Aschenbrenner’s fund management team did not immediately reduce exposure. Instead, believing the market was only experiencing a short-term correction, they doubled down on AI holdings, hoping to buy the dip and wait for a rebound.

However, as net asset value continued to shrink, brokers began issuing margin calls.

Market observers noted that when a highly leveraged fund receives a margin call, brokers demand additional collateral within a strict timeframe. Failure to meet the deadline could result in forced liquidation by the prime broker.

It was reported that Aschenbrenner was actively seeking additional capital from existing investors and considering selling stakes in private companies like Anthropic to raise cash and reduce leverage.

However, the market quickly sensed the fund was selling assets, making investors even less willing to buy related stocks, and liquidity rapidly deteriorated.

Market analysts pointed out that when everyone knows a stock 'must be sold,' buyers typically pull back quickly, further amplifying the price decline.

The lower the stock price, the more collateral the fund must post; to meet margin requirements, it must sell more shares—creating a classic 'liquidity death spiral.'

Citadel Reportedly Buys at Discount: AI Stocks Rebound the Next Day

Just as the market feared the $45 billion fund might face full forced liquidation, a major turning point occurred.

Market sources indicated that the large U.S. hedge fund Citadel quickly entered negotiations with the Situational Awareness fund and ultimately acquired approximately $16 billion worth of listed stock positions at a discount, sparing the fund from a massive one-time sell-off in the public market.

After the transaction, Aschenbrenner retained some private equity stakes, including investments in Anthropic, and about $5 billion in personal assets, but most of the listed stocks were taken over by Citadel.

After the deal was announced, sentiment around U.S. AI-related stocks quickly reversed.

On July 30, when U.S. markets opened, AI hardware stocks—previously in a multi-day decline—surged across the board. SanDisk jumped nearly 25% in a single day, while SK Hynix, Micron, and CoreWeave rose over 10% on average. The Nasdaq Index also quickly recovered most of its previous week’s losses.

This market movement led many investors to believe that the earlier tech stock plunge was not due to a deterioration in AI industry prospects, but rather a short-term supply-demand imbalance caused by a large leveraged fund being forced to sell.

Was the Fund 'Hunted'? No Clear Evidence Yet

Given that the price drop was concentrated in stocks heavily held by the fund, that shorted positions actually rose, and that Citadel acquired large stakes just before a forced liquidation, outsiders began questioning whether large players deliberately pressured the fund to force it out early.

However, as of now, there is no public evidence of illegal market manipulation or coordinated attacks by multiple institutions.

Some market participants argue that even without collusion, when a large fund’s holdings are highly transparent and its leverage ratio is high, its risk thresholds naturally become market focal points.

Once stock prices break key levels, the market may naturally see more momentum trading, accelerating liquidity deterioration.

Long-Term AI Trends Unchanged: The Event Highlights Risk Management Importance

This incident also reminded the market of Bill Hwang’s Archegos Capital Management in 2021. Both cases involved high leverage and concentrated holdings, rapidly falling into liquidity crises during market reversals, ultimately triggering market shocks.

Analysts noted that Aschenbrenner’s case again illustrates that even with a correct grasp of long-term AI industry trends, high leverage and excessive concentration can expose a fund to massive risks in a short time.