On Monday, October 19, the U.S. stock market's Philadelphia Semiconductor Index ended an eight-day losing streak, rallying over 3% intraday and closing up 1.6%.Article author and source: Wall Street Journal
The AI sector experienced a technical rebound on Monday after a new round of intense consolidation, but the market remains deeply divided on whether this rebound signals a trend reversal or merely a brief respite.
On Monday, October 19, the U.S. stock market's Philadelphia Semiconductor Index ended an eight-day losing streak, rallying over 3% intraday and closing up 1.6%.
Goldman Sachs upgraded cloud computing company CoreWeave from "Neutral" to "Buy" today, and several Wall Street analysts followed suit, backing the fundamentals and helping to ease the market's earlier panic over AI capital expenditures peaking.
The backdrop for this rally is identical to the deleveraging wave triggered months ago by the collapse of the Situational Awareness fund.
Wall Street Journal mentioned, UBS trading desk trader Torsten Sippel explicitly noted in last week’s report that last week’s market movement closely resembled the “AI god” event—both were driven by forced liquidations of crowded positions, not fundamental-driven systemic selling.
However, as the rebound emerges, analysts caution that hedge funds' overall exposure remains high, and the risk of deleveraging has not been fully resolved; the market remains divided on whether this rebound represents a true bottom or merely a temporary respite.
The "AI oracle" has been crushed again—this is the second time Aschenbrenner has failed on an AI bet in less than six months.
In July of this year, Aschenbrenner’s Situational Awareness fund suffered losses of tens of billions of dollars due to a sharp correction in the AI sector, setting the record for the largest single-fund loss in hedge fund history, and was ultimately forced to significantly reduce leverage and sell most of its public market positions to Citadel. In a letter to investors, Aschenbrenner stated that he would "fight another day" and pledged to "learn the necessary lessons."
However, just weeks later, he made a comeback.Wall Street Journal mentioned that in September, Aschenbrenner had already begun rebuilding his previously liquidated core positions, including stocks such as AMD, Intel, SK Hynix, SanDisk, and CoreWeave, shifting from the high-leverage total return swap model previously used through major investment banks like Goldman Sachs to a flexible options structure aimed at capping maximum losses at the premium paid.
The outcome is equally disappointing. Since September 8, six of the seven stocks he heavily weighted have experienced sharp declines: CoreWeave fell 37.4%, SK Hynix dropped 25.8%, SanDisk declined 23.8%, DRAM fell 22.9%, Bloom Energy dropped 18.1%, and Intel slid 9.4%. Only AMD rose by 9.1%, resulting in an average decline of 18.3% across the seven holdings.
The Market Ear has dubbed this event "Leopold Lows 2.0." DRAM prices have fallen back to the low point seen during the previous liquidation.
CoreWeave's RSI has also retreated to that level.
Meanwhile, the CoreWeave call options with a $95 strike price expiring in November, which he built his position on in early September, have dropped from a high of $18 to just around $1.
Position liquidation and technical oversold conditions: The factors for a rebound are coming together. According to Goldman Sachs data, the structural characteristics of this selling wave have laid the groundwork for a rebound on Monday.
Hedge funds have net sold global AI stocks for five consecutive trading days, according to Goldman Sachs, with the cumulative net purchases of AI stocks since 2025 now fully erased.
Global AI stocks recorded the second-largest net selling volume in nearly a year. Hedge funds' net allocation to global AI stocks declined from a June peak of 31.7% to 26.1%, placing it at the 49th percentile over the past year; the long-short ratio fell from 4.34 to 3.27, reaching only the 7th percentile over the past year.
The Market Ear analysis indicates that this selling pressure is primarily driven by long position reductions. Last week, global net selling flow reached -2.1 standard deviations, with a ratio of long-selling to short-selling of approximately 3:1, suggesting the market is in a phase of actively reducing risk exposure. Once forced selling is gradually exhausted, technical support levels will begin to emerge.
The Philadelphia Semiconductor Index has reached the lower boundary of its trading range and is approaching a longer-term trend support line, with oversold conditions reaching extreme levels.
Meanwhile, panic sentiment in the options market was also concentratedly released this week, with VXSMH (the semiconductor volatility index) surging sharply. However, analysts believe that, following the principle that extremes beget their opposites, extreme market panic often signals a bottom.
Notably, the passive liquidation of options also amplified the prior decline. Market makers, who had purchased Delta-hedging positions when establishing long call options, were forced to close these positions as the options' value shrank, creating additional selling pressure on the underlying stock and intensifying downward momentum.
Wall Street analysts: The fundamentals have not undermined the rebound, which was made possible on Monday by strong backing from analysts.
Goldman Sachs upgraded CoreWeave from "Neutral" to "Buy," with analyst Gabriela Borges acknowledging legitimate concerns about the company’s ability to secure financing, but believing the valuation has become attractive after the significant decline.
In her research report, she noted that even if CoreWeave’s blended cost of debt rises by 100 to 200 basis points, it would not exceed this range, effectively setting an upper bound on the weighted average cost of capital and preserving the viability of the equity return structure.
Goldman Sachs lowered its price target from $139 to $106, yet still implies over 40% upside from last Friday’s closing price; according to Bloomberg data, the current average analyst price target for CoreWeave is $135.23, implying an approximate 120% upside.
Leading tech analyst Dan Ives compared this sell-off to a "SaaS doomsday panic" in the AI infrastructure space, citing CoreWeave's approximately $104 billion in backlog orders at the end of Q2 to emphasize that customer commitments on the demand side remain intact, and expects the fundamental-driven upward trend to continue after the panic subsides.
Moor Insights & Strategy founder Patrick Moorhead said directly:
I think this is just another round of panic, as people are looking for reasons to sell rather than to buy.From the perspective of total capital expenditures, UBS Wealth Management's CIO has raised the global AI capex forecast for 2026 to $900 billion, an 84% year-over-year increase; for 2027, it is further raised to $1.2 trillion, a 33% year-over-year increase, directly triggered by recent widespread cost increases across the AI server supply chain.
The most noticeable rebound on Monday came from the assets that suffered the steepest declines last week. On Monday, SanDisk rose 5.5%, SK Hynix ADR rose 4.6%, Micron rose 3%, and Intel rose 2.4%.
Above the rebound: deleveraging is far from over; however, this rebound is not without concerns, as several analysts warn that market structure remains fragile.
Sippel of UBS noted that although hedge fund net exposure has fallen to the 30th percentile of its five-year history, total exposure remains above the 90th percentile, indicating further room for deleveraging. He characterized recent market conditions as "fragile rather than deeply bearish," suggesting that risks are being reallocated.
CoreWeave’s credit issues have not fully dissipated. Last week, its bond prices fell to levels typically indicative of financial distress, and the cost of bond default protection surged to an all-time high during trading. Despite Goldman Sachs upgrading its rating and the stock rising as much as 7.4% intraday on Monday, it ultimately closed down 0.4%.
Sippel noted that concerns about the sustainability of AI infrastructure financing structures have developed a pricing logic independent of hardware demand, and the strong fundamentals of ASML and TSMC have failed to effectively alleviate this concern.
Bank of America strategist Michael Hartnett warns that risk-off sentiment may dominate markets in the coming weeks as investors seek to avoid volatility from rising interest rates, the U.S. midterm elections, and AI-themed trades.
Over the coming week, tech giants such as Meta and Tesla will陆续 release their earnings reports, providing a more direct data test of the real elasticity of AI-related capital expenditures. For this rebound, market consensus may lie in the view that positions have already been cleared, but confirmation of the bottom still awaits clearer fundamentals.
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