Author | Xie Ruirui, Tencent Technology
On July 30, U.S. stocks experienced a nearly dramatic reversal. The tech stocks that had collectively declined the previous day suddenly reversed course and surged: the Nasdaq Index rose 2.8%, and Microsoft jumped 15.51% in a single day, marking its largest single-day gain since 2008.
Just one day before the tech stock surge, Leopold Aschenbrenner, the former OpenAI researcher dubbed the "new stock god" by Wall Street, was liquidated and exited the market.
Two months ago, the Situational Awareness fund founded by Ashenbrenner was hailed by the market as almost mythical. It was reported that its assets under management once swelled to $45 billion, with heavy concentrations in AI and large-cap technology stocks.
Less than 10 days later, market sentiment shifted dramatically.
First, Alphabet and Tesla both reported negative free cash flow in their earnings reports, followed by a 4.8% single-day drop in the Magnificent Seven index, wiping out approximately $797 billion in combined market value for the seven companies; shortly after, Meta's second-quarter free cash flow plummeted 91% to just $784 million; then, Citadel Securities publicly stated in a research report that the Federal Reserve might unexpectedly raise rates, further worsening market sentiment.
Long-term interest rates have surged, AI capital expenditures have spiraled out of control, tech giants' cash flows have deteriorated, compounded by highly leveraged concentrated positions. According to market sources, Ashenbrenner has sold the majority of his public equity portfolio to Citadel Investments (an affiliate of Citadel Securities).
Wall Street's "AI Oracle" couldn't withstand the pressure and fell just before dawn.
01 "Economic prodigy" with 4x leverage
Castle Investment, founded by billionaire Ken Griffin, is one of the world’s largest hedge funds and is responsible for taking over the Situational Awareness assets created by Schenker.
Ashenbrenner is 25 years old and was born in Germany. He entered Columbia University at age 15 and graduated at 19 as valedictorian, hailed by economist Tyler Cowen as an “economics prodigy.”
In 2024, Ashenbrenner was fired by OpenAI for what was termed "improper disclosure of internal information." After his departure, he published a 165-page article titled "Situational Awareness: The Decade Ahead" in June of that year, which circulated widely in Silicon Valley and became the foundation for his future fundraising efforts.
Leveraging this tailwind, Ashenbrenner founded Situational Awareness in September 2024 with initial funding of just hundreds of millions of dollars.
Ashenbrenner's fund strategy is highly concentrated: long on AI hardware and infrastructure, short on traditional software.
According to regulatory filings, as of the end of the first quarter of 2026, its largest positions include Nebius, SanDisk, Micron, and CoreWeave, along with significant holdings in Bloom Energy, SK Hynix, Oracle, and AMD, while shorting software companies such as Adobe.
Primary public market equity holdings of the Situational Awareness Fund as of March 31, 2026. Source: FactSet
Situational Awareness amplified returns through borrowing, with leverage reaching up to four times. In the private market, it holds stakes in Anthropic, chip startup MatX, and data center company Fluidstack.
By the end of 2025, the fund had only about eight employees, of whom only four were investment professionals.
02 The Legend of the Stock God, Ten Days to "The End"
The turning point occurred on July 10.
On that day, SK Hynix's American depositary receipts officially debuted on Nasdaq, with an offering price of $149 per share, raising approximately $26.5 billion and becoming the largest initial public offering by a foreign company in the U.S. Situational Awareness was one of the cornerstone investors in this listing.
On its first day of trading, SK Hynix's depositary receipts opened at $170, rising approximately 14%. However, the gains were short-lived, as AI hardware stocks began to correct overall.
Between July 10 and 20, both long and short positions in Situational Awareness were under pressure.
On the long side, core holdings such as SK Hynix, SanDisk, Bloom Energy, and Nebius have continued to decline, with these stocks generally dropping over 30% within a month; on the short side, software stocks like Adobe, which were shorted, have rebounded, causing losses on both ends of the “long hardware, short software” strategy.
On July 24, Ashenbrenner wrote to investors, acknowledging that his fund “did not escape” market turbulence, particularly in Asian markets, but characterized the sell-off as one of the most attractive buying opportunities since early 2025 and invited clients to deploy new capital starting August 1. However, according to Bloomberg, this appeal did not yield the level of capital commitments he had hoped for.
Just three days later, Castle Securities publicly stated that the Federal Reserve might unexpectedly raise interest rates, further worsening market sentiment. On July 29, major brokers including Bank of America, Goldman Sachs, and JPMorgan Chase began issuing margin calls.
By July 30, Situational Awareness was officially liquidated.
According to informed sources, Castle Investment acquired the portion of the fund’s public market equity portfolio that was financed by borrowed capital, while the remaining portion funded by client capital was retained. After the transaction, the total assets of the Situational Awareness fund dropped sharply from a peak of approximately $45 billion in early July to around $10 billion.
Ironically, this liquidation coincides with Ashenbrenner’s wedding this weekend, where his fiancée, Avital Balwit, serves as chief of staff to Anthropic’s CEO, Dario Amodei.
03 Cash Flow Gaps and Capital Expenditure Dilemmas of Giants
The liquidation of Situational Awareness stems from a larger narrative shift behind AI trading: tech giants, once renowned for their "fortress-like" cash flows, are collectively burning through cash on data centers and computing infrastructure.
Over the past few years, the market has been willing to assign high valuations to tech giants, based on the key premise that they could both grow and consistently generate massive free cash flow. But the latest earnings reports show this premise is beginning to weaken:
Alphabet's second-quarter revenue reached $119.8 billion, a 24% year-over-year increase; Google Cloud revenue hit $24.8 billion, with a remarkable 82% year-over-year growth, and the cloud business's operating profit margin rose from 20.7% to 35.6%. However, capital expenditures during the same period amounted to $44.9 billion, resulting in a negative free cash flow of $5.9 billion for the quarter.
Alphabet's CFO, Anat Ashkenazi, said on the call that free cash flow "will continue to be pressured" as AI investments deepen.
Meta is facing similar issues. In the second quarter, the company reported revenue of $60.8 billion, a 28% year-over-year increase. While advertising revenue continued to grow, costs and expenses surged 55% year over year, with capital expenditures reaching $31.08 billion. Free cash flow dropped to just $784 million, a 91% decline year over year. Management has clearly stated that expanding computing capacity through 2026 to 2027 remains a top priority.
Amazon's AWS revenue for the second quarter reached $42.2 billion, a 37% year-over-year increase—the fastest growth rate in 18 quarters; however, the company simultaneously raised its full-year capital expenditure forecast to $220 billion, and its free cash flow over the past 12 months shifted from a net inflow of $18.2 billion in the same period last year to a net outflow of $7.6 billion.
Combining the full-year guidance of several "super capital spenders": Alphabet at $205 billion, Amazon at $220 billion, Microsoft at $190 billion, and Meta at $145 billion, totaling approximately $760 billion.
When will the investment yield returns? As Ken Mahoney, CEO of Mahoney Asset Management, said: "The real question is the scale of current spending—no one knows what the return on investment actually is."
04 The largest seller has exited, but AI trading hasn't been fully cleared yet
The tech stock rebound on July 30 was a release of market sentiment following the exit of the largest sellers.
Orluk noted that when investors know a potential seller has exited, bargain buyers rush in. CNBC commentator Jim Cramer called Situational Awareness’s exit a “clearing event,” suggesting it helps stabilize AI trading.
However, opinions within the industry vary regarding the nature of this liquidation.
Michael Dempsey, managing partner at investment firm Compound, posted that Situational Awareness’s foresight was “incredibly impressive,” but anyone with experience in public markets could see this was a “single bet” with poor risk management.
Tim Culpan, former Bloomberg columnist, said this “shows the difference between wisdom and cleverness,” as leveraged positions eliminate the buffer needed to navigate market downturns, even if the investment thesis is correct in the long term.
Investor Martin Shkreli put it more bluntly: the leverage levels are what they are, and there’s no other outcome.
Situational Awareness is not an isolated case. Goldman Sachs prime brokerage data shows that Asian fundamental long-short funds experienced an average drawdown of 18.6% in July; Morgan Stanley prime brokerage reports indicate that equity hedge funds are simultaneously reducing both long and short positions at relatively equal scales, and deleveraging is not yet complete.
What the market urgently needs to know is: how long can a portfolio that continues to generate cloud revenue while maintaining negative free cash flow sustain itself, and how many institutions have established similar highly leveraged concentrated positions on the same stock.