AI Fund Loses Two-Thirds of Its Value in One Month

A hedge fund called Situational Awareness lost 67% of its value in July 2026 after making big bets on artificial intelligence stocks that went wrong. The fund is run by Leopold Aschenbrenner, who used to work at OpenAI, a well-known AI company. He told his investors about the losses in a letter on Thursday, July 31. Even with the huge July drop, the fund is still up 80% for the year because it had made so much money earlier in 2026.

Aschenbrenner started the fund in 2024, and it became very popular among investors who believed in the future of AI. Many people followed his ideas closely, almost like fans. His fund focused almost entirely on stocks related to artificial intelligence, which had been rising fast. That worked well for a long time — until July, when things changed quickly and sharply.

A big sell-off in computer chip stocks caused fear across the market. Investors started to worry that AI companies might be worth too much and that the AI boom could be slowing down. As stock prices fell, many funds that had made similar bets started losing money at the same time. People who bet against AI stocks, called short sellers, also jumped in, pushing prices down even further.

Aschenbrenner's fund used borrowed money to make bigger bets, which is common for hedge funds. When this works, it can lead to huge gains. But when stock prices drop, borrowed money makes the losses much larger and much faster. His fund ran into serious trouble when prices moved against it and it became hard to sell stocks quickly to raise cash.

The fund sold most of its stock holdings to Citadel, a large investment firm owned by billionaire Ken Griffin. This helped stop the bleeding, but the damage had already been done. Aschenbrenner wrote in his letter that the fund came close to losing everything permanently, which he called unacceptable. He said the firm found a solution in the end, but never wanted to be in that position at all.

He also explained that some stocks fell extra hard simply because they were publicly linked to his fund. When other investors saw those stocks dropping, they sold too, making things worse. He compared this to a bank run, where fear spreads and makes a bad situation even worse. Despite all of this, Aschenbrenner said his fund has now removed all borrowed money from its investments and remains hopeful about the future of AI.