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Situational Awareness: When Leverage Meets Volatility
The Rapid Rise of Leopold Aschenbrenner
It would be difficult for anyone to find a more rapid Wall Street ascent than Leopold Aschenbrenner. In 2021, Aschenbrenner graduated from the prestigious Columbia University as valedictorian at the ripe age of just 19 years old. Two years later, he joined AI juggernaut OpenAI to pursue technical breakthroughs to steer and control AI systems. However, in 2024 he was fired from OpenAI over an alleged information leak. Nevertheless, Leopold did not let his artificial intelligence go to waste. Instead, he wrote a 165-page essay named “Situational Awareness: The Decade Ahead” outlining his bull case for the AI industry.
Soon after, Aschenbrenner’s essay went viral, receiving widespread coverage from the mainstream media and the attention of big money investors. To capitalize on his newfound fame, Leopold Aschenbrenner launched an AI-focused hedge fund dubbed Situational Awareness. Initially, Situational Awareness raised $225 million (which quickly grew to $1.5 billion. His timing couldn’t have been more perfect. The portfolio piled into several multi-bagger AI infrastructure winners such as Bloom Energy, SanDisk Hive Digital Technologies, CleanSpark and IREN.
Situational Awareness is Forced to Unwind Positions
By 2026, the fund’s AUM ballooned to a mind-boggling $45 billion as it continued to ride the AI boom and attract new investment. However, in July, the AI trade came to a screeching halt, and high-beta momentum stocks encountered their worst drawdowns since the COVID-19 market crash.
Last week, news broke that Situational Awareness was forced to unwind all of its publicly traded positions (which were scooped up by Citadel).
Lessons from the Situational Awareness Debacle
According to a letter sent to investors, SA, which was up more than 400% at one point in 2026, lost 67% of its value in July alone. Although Aschenbrenner manages more capital than 99% of investors, there are important lessons any investor can take from the situation, including:
· Extreme Leverage is Dangerous: Situational Awareness used an extreme 4:1 leverage ratio. Leverage can magnify volatility – especially in the high-beta momentum stocks the firm trades.
· Portfolio Construction is Critical: Because all of SA’s stocks were AI-related, they were highly correlated and prone to concentration risk.
· Stocks Take the Stairs Up, Elevator Down: Momentum stocks tend to grind higher but can break down in a hurry. For instance, AI leader SNDK plunged 57% in under a month.
· Execution is Everything: In old interviews, Aschenbrenner discussed the importance of risk management and understanding volatility. However, like many investors, he succumbed to visions of grandeur and failed to implement sound risk management principles.
Situational Awareness remains up 80% year-to-date, but much of the incredible results have been eroded and the fund has undoubtedly suffered a reputational hit.
Bottom Line
The rapid rise and violent drawdown of Situational Awareness serve as a masterclass in market physics for retail and institutional investors alike. While Aschenbrenner’s vision for the AI revolution was sound, his fund’s concentration left it defenseless against a sudden shift in market regime.
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Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Bloom Energy, SanDisk, Hive Digital, CleanSpark and IREN
For Immediate Release
Chicago, IL – August 4, 2026 – Today, Zacks Investment Ideas features Bloom Energy (BE - Free Report) , SanDisk (SNDK - Free Report) Hive Digital Technologies (HIVE - Free Report) , CleanSpark (CLSK - Free Report) and IREN (IREN - Free Report) .
Situational Awareness: When Leverage Meets Volatility
The Rapid Rise of Leopold Aschenbrenner
It would be difficult for anyone to find a more rapid Wall Street ascent than Leopold Aschenbrenner. In 2021, Aschenbrenner graduated from the prestigious Columbia University as valedictorian at the ripe age of just 19 years old. Two years later, he joined AI juggernaut OpenAI to pursue technical breakthroughs to steer and control AI systems. However, in 2024 he was fired from OpenAI over an alleged information leak. Nevertheless, Leopold did not let his artificial intelligence go to waste. Instead, he wrote a 165-page essay named “Situational Awareness: The Decade Ahead” outlining his bull case for the AI industry.
Soon after, Aschenbrenner’s essay went viral, receiving widespread coverage from the mainstream media and the attention of big money investors. To capitalize on his newfound fame, Leopold Aschenbrenner launched an AI-focused hedge fund dubbed Situational Awareness. Initially, Situational Awareness raised $225 million (which quickly grew to $1.5 billion. His timing couldn’t have been more perfect. The portfolio piled into several multi-bagger AI infrastructure winners such as Bloom Energy, SanDisk Hive Digital Technologies, CleanSpark and IREN.
Situational Awareness is Forced to Unwind Positions
By 2026, the fund’s AUM ballooned to a mind-boggling $45 billion as it continued to ride the AI boom and attract new investment. However, in July, the AI trade came to a screeching halt, and high-beta momentum stocks encountered their worst drawdowns since the COVID-19 market crash.
Last week, news broke that Situational Awareness was forced to unwind all of its publicly traded positions (which were scooped up by Citadel).
Lessons from the Situational Awareness Debacle
According to a letter sent to investors, SA, which was up more than 400% at one point in 2026, lost 67% of its value in July alone. Although Aschenbrenner manages more capital than 99% of investors, there are important lessons any investor can take from the situation, including:
· Extreme Leverage is Dangerous: Situational Awareness used an extreme 4:1 leverage ratio. Leverage can magnify volatility – especially in the high-beta momentum stocks the firm trades.
· Portfolio Construction is Critical: Because all of SA’s stocks were AI-related, they were highly correlated and prone to concentration risk.
· Stocks Take the Stairs Up, Elevator Down: Momentum stocks tend to grind higher but can break down in a hurry. For instance, AI leader SNDK plunged 57% in under a month.
· Execution is Everything: In old interviews, Aschenbrenner discussed the importance of risk management and understanding volatility. However, like many investors, he succumbed to visions of grandeur and failed to implement sound risk management principles.
Situational Awareness remains up 80% year-to-date, but much of the incredible results have been eroded and the fund has undoubtedly suffered a reputational hit.
Bottom Line
The rapid rise and violent drawdown of Situational Awareness serve as a masterclass in market physics for retail and institutional investors alike. While Aschenbrenner’s vision for the AI revolution was sound, his fund’s concentration left it defenseless against a sudden shift in market regime.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.7% average gain per year. Amazingly, they soared with average gains of +48.4%, +50.2% and +56.7% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Zacks Investment Research
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.