AI Hedge Fund's 67% July Plunge Sparks Leverage Warnings from Chinese Investors

The collapse of Situational Awareness, a US hedge fund heavily invested in the AI supply chain, has triggered warnings from Chinese investors about the dangers of leverage and chasing hot trends. In July alone, the fund's portfolio plummeted 67%, according to a letter from the firm to investors reported by The Wall Street Journal. The fund, founded in 2024 by Leopold Aschenbrenner, a former OpenAI researcher, offloaded billions of dollars in technology shares to Citadel on Thursday after failing to meet lenders' collateral demands. The stocks involved, including memory-chip makers SK Hynix and SanDisk and AI cloud-computing provider Nebius Group, experienced sharp declines, with SanDisk and Nebius falling over 30% in the past month. Shanghai-based analysts Harry Shen and Michael Zhang emphasized the risks of using borrowed money and blindly following market trends, noting that by the time retail investors enter, others may be exiting. The incident serves as a wake-up call for Chinese tech investors amid volatility in US tech stocks.