Microsoft Revives AI Stocks, But It’s Too Late for former Open AI Researcher Leopold Aschenbrenner’s Fund

• Leopold Aschenbrenner, the former OpenAI researcher, saw his Situational Awareness fund unwind much of its public portfolio through a Citadel portfolio sale, even as Microsoft AI stocks sparked an AI stock rebound
• Microsoft’s record $450 billion market value gain revived investor confidence in AI, but the recovery came after Aschenbrenner’s leveraged AI bets had already unraveled
• The episode shows how leverage can force investors out of strong long-term themes, even when the broader AI investment story remains intact

Microsoft’s blockbuster earnings reignited the AI trade on Thursday, adding a record $450B in market value in a single day. The rally helped revive the AI stock slump, but it was already too late for former OpenAI researcher Leopold Aschenbrenner. Leopold’s famous Situational Awareness fund was forced to unwind much of its public stock portfolio by selling it to Citadel, after suffering steep losses.

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Microsoft AI Stocks Rally Comes Too Late For Aschenbrenner

The sharp rebound in Microsoft AI stocks has ended up revamping the sullen market sentiment. The sector was experiencing a rapid AI stock sell-off amid investors worrying about rising AI expenditures and whether those investments would generate strong enough returns. However, Microsoft’s stellar earnings yesterday revived the domain from its slump.

But the development was a bit late for Leopold Aschenbrenner’s hedge fund.

Aschenbrenner’s Situational Awareness fund had sold the bulk of its public stock portfolio to Citadel after encountering heavy losses on leveraged bets. The prime brokers of this deal include Bank of America, Goldman Sachs, and JPMorgan. These banks reportedly worked with the fund as it sought to meet margin requirements and reduce positions. The former OpenAI researcher’s fund had amassed well over $20B AUM since its founding two years ago. CNBC reported the fund had grown to as much as $45B at the start of July. Per WSJ, Aschenbrenner was often seen as the AI oracle, with investors tracking his firm’s movement closely.

Per WSJ, Situational Awareness still holds some of its private company investments, including Anthropic, citing people familiar with the matter. What’s surprising here is the timing. Microsoft’s stellar earnings have renewed the AI stock momentum and narrative. But Leopold Aschenbrenner had already been forced to exit many of the public positions built around the same long-term thesis.

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Why Was The Situational Awareness Fund Forced To Sell?

The fund was built on a simple idea of AI innovation and how it would drive demand for AI chips and other leading AI infrastructure. This narrative helped the former OpenAI researcher attract well over $20B in assets within two years of its inception. At one point the fund managed nearly $45B, according to CNBC. However, Aschenbrenner relied heavily on leverage as its main strategy.

As several AI infrastructure stocks tumbled this week, the fund’s biggest holdings also fell. This includes leading names such as SK Hynix, Micron, SanDisk, the Nebius Group, and CoreWeave. The fund’s short positions in software stocks moved against it, amplifying the losses.This is what reportedly triggered the margin pressure, forcing the Situational Awareness fund to unwind much of its public equity portfolio.

Why Citadel Stepped In To Buy The Portfolio

Per WSJ reports, Citadel has agreed to purchase the bulk of Leopold Aschenbrenner’s Situational Awareness Fund public stock portfolio. The sale allowed the firm to reduce exposure as it faced mounting margin pressure. Aschenbrenner’s story is more about using leverage with care, as it can end up being lethal for one’s business. Despite banking on the rising AI infrastructure demand, Aschenbrenner’s leverage strategy forced the fund to unwind much of its public stock portfolio, even when AI stocks continue to bank on the latest Microsoft AI stock momentum win. The fund still holds some of its private investments, including Anthropic, according to WSJ.

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