Implosion of Situational Awareness hedge fund has Wall Street betting the bottom is in for the AI trade

By Joseph Adinolfi

Leopold Aschenbrenner's hedge fund, Situational Awareness, has offloaded its stock portfolio after booking major losses, according to media reports

Situational Awareness, the hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, has reportedly offloaded the bulk of its public-equity portfolio.

One of the wildest months in recent memory for the U.S. stock market is ending on yet another remarkable note: A highflying hedge fund run by an AI wunderkind in his mid-20s has apparently just been carried out on a stretcher.

Situational Awareness, the hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, has reportedly offloaded the bulk of its public-equity portfolio after suffering heavy losses over the past month, according to a report by the Wall Street Journal. Citadel, the hedge fund run founded by billionaire Ken Griffin, was reportedly the buyer. Neither Situational Awareness nor Citadel responded to a request for comment from MarketWatch.

Prior to apparently dumping its holdings, the fund had posted dazzling returns by using leverage to bet on AI-related stocks, reportedly tallying a more than 2,000% gain since its launch in September 2024. According to the Financial Times, the firm told investors in a letter sent earlier in July that its portfolio had been up 439% during the first half of 2026.

Still, many of the firms' holdings, based on recent securities filings, had been under intense pressure for the past several days and weeks.

Shortly after CNBC reported on Thursday that the hedge fund had dumped its highly leveraged positions in AI-related stocks - a sale that reportedly took place in the form of a giant block trade - a switch seemed to flip in the market. That meant that the fund would no longer be selling its position to meet demands from its lenders. Relief buying on Wall Street swept through the fund's long positions on Thursday, with many of the holdings reported in its latest 13-F filing up 20% or more, according to Dow Jones Market Data.

There's little doubt that that reports of Situational Awareness getting blown out have helped revive investors' confidence in the flagging AI trade, according to Michael O'Rourke, chief market strategist at Jones Trading.

"Speculation had been out there in the market all week that Situational Awareness was potentially under pressure, obviously a lot of names in their portfolio had been sold aggressively," O'Rourke said.

"But when you know that a potential seller is out of the market - that's when all the buy-the-dippers come rushing back in."

July's momentum crash has been among the most painful in recent memory. The stocks of AI-related companies associated with high-volume and rapid moves in one direction generally fell sharply this month. Whether or not this marks a turning point for the AI trade after it was swept up in a painful momentum unwind remains to be seen.

One widely followed long-short basket of high-beta momentum names maintained by Goldman Sachs was down nearly 40% for the month through Wednesday's close, according to data shared with MarketWatch. But based on Thursday's price action, investors appear to be betting aggressively that much of the pain is now in the rearview mirror with Situational Awareness out of the picture.

"Obviously, the way that a lot of this stuff is acting, everybody is behaving like the bottom is in," O'Rourke told MarketWatch. "Whether the bottom actually is in - I'm not really convinced."

A hedge-fund blowup as a guidepost for identifying turning points in markets can be tricky, according to Mark Hackett, chief market strategist at Nationwide.

"Almost every massive inflection point comes with one of these stories, but very few of these stories leads to a massive inflection point," Hackett told MarketWatch.

Still, the episode has been a good reminder about the dangers of using leverage to boost returns. According to media reports, Situational Awareness had leveraged up its holdings by as much as four times its underlying capital at times during its spectacular run of returns.

AI wunderkind

Aschenbrenner had attracted substantial attention on social media and in the financial press, due in part to his youth, and a bold vision outlined in a 2024 viral essay, also titled Situational Awareness.

"Before long, the world will wake up. But right now, there are perhaps a few hundred people, most of them in San Francisco and the AI labs, that have situational awareness. Through whatever peculiar forces of fate, I have found myself amongst them," Aschenbrenner wrote at the time.

CNBC reported that the firm's assets under management had climbed as high as $45 billion at the start of July.

Ken Jimenez contributed

-Joseph Adinolfi

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07-30-26 1636ET