AI Stock Selloff Triggers Hedge Fund Losses and Fund Collapse

Global hedge funds surrendered nearly 3% of their July 2026 gains as a selloff in artificial intelligence and semiconductor stocks hit crowded trades. JPMorgan reported that quantitative equity funds averaged a 5% loss, while Asia-Pacific stock pickers suffered an average decline of 9.4%. The downturn was driven by investor concerns over AI infrastructure spending and declines in shares of companies such as Taiwan Semiconductor, Lam Research, and Applied Materials.

High-profile firms faced significant drawdowns. Whale Rock Capital Management's flagship fund fell 21.7%, Point72 Asset Management's Turion fund dropped 11.4%, and Coatue Management recorded an 8.3% loss, its worst monthly performance in over a year. The most severe impact hit Situational Awareness, an AI-focused fund led by Leopold Aschenbrenner. The fund lost 67% of its value in July, with assets under management plummeting from $45 billion to approximately $10 billion. Aschenbrenner's use of extreme leverage, reportedly up to 400% in some positions, amplified these losses.

To satisfy margin calls, Situational Awareness sold the bulk of its public equity portfolio to Citadel LLC at a 10% discount. While many tech-focused funds struggled, Citadel emerged as a beneficiary, with its flagship fund climbing 5.9% in July. The broader volatility coincided with a surge in Wall Street risk, as the Financial Industry Regulatory Authority noted that U.S. brokerage margin debt reached an all-time high of $1.502 trillion in June 2026. Despite the July rout, most affected funds remain positive for the year.