The portfolio of Leopold Aschenbrenner's AI-focused hedge fund, Situational Awareness, fell 67% in July after steep losses on AI stocks, according to a letter sent to investors on Thursday that was seen by Reuters. The fund sold the bulk of its stock portfolio to billionaire Ken Griffin's Citadel this week and unwound most of its public equities portfolio.

'We came closer to permanent capital impairment than is acceptable to us,' Aschenbrenner, a former OpenAI researcher, wrote in the letter. 'We let you down this month,' he said, adding that the firm never intended to be in that position. Still, the fund's gains for the year are so staggering that it remains up about 80% in 2026, and Aschenbrenner said he remains 'very optimistic' about the portfolio as underlying fundamentals continue to strengthen.

The collapse follows a global selloff in chip stocks that has revived fears that the AI boom may be losing steam and that valuations have reached unsustainable levels, wiping out gains from crowded bets across the sector while short sellers pile in. 'We worked to keep the portfolio within our risk parameters, but gradually this became more difficult as positions rapidly moved against us and market liquidity dried up,' Aschenbrenner told investors, noting that the fund has removed all leverage. The firm also saw adverse trading in stocks publicly associated with it. 'These dynamics are essentially similar to a bank run: vulnerability begetting more vulnerability.'

Since launching the fund in 2024, Aschenbrenner has drawn a cult-like following among investors for his AI-sector bets, which reportedly returned more than 200% after fees in 2025 and were up as much as 439% in the first half of 2026 — making the July drawdown, exacerbated by extreme moves in core positions over the past week, one of the most dramatic reversals in the AI trade's history.

Sources