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Citadel’s swoop on Situational Awareness helped stem a $3tn AI rout

Investors say the hedge fund deal reassured jittery traders in tech stocks

Ken Griffin speaks at the Norges Bank Investment Management annual investment conference, wearing a suit and microphone headset.Many market participants believe the deal Ken Griffin’s Citadel reached with Situational Awareness averted a fire sale of its extensive holdings of AI stocks© Bloomberg

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Kate Duguid in New York and Emily Herbert and Ian Smith in London

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Citadel’s swoop on hedge fund Situational Awareness has been credited by investors with a key role in steadying global markets following a $3tn semiconductor rout that was threatening to run out of control.

Ken Griffin’s hedge fund on Thursday snapped up the bulk of the firm’s $16bn of public equities in a deal that many market participants believe averted a fire sale of its extensive holdings of AI stocks, shoring up confidence in a sector that had been in free fall for most of the past month.

Citadel bought the shares at more than a 10 per cent discount, according to a person familiar with the matter.

“Removing a known forced seller is genuinely bullish,” said Charles-Henry Monchau, chief investment officer at the Swiss bank Syz.

US tech stocks staged their biggest one-day rally in nearly four months in the aftermath, while South Korea’s chip-heavy market rebounded from its recent slump by soaring 18 per cent on Friday.

The swift reversal in markets was not solely down to relief that Leopold Aschenbrenner’s troubled fund had offloaded its public equity portfolio.

Investors and analysts also said strong earnings from Microsoft on Wednesday helped to soothe anxieties in markets that the vast scale of AI investment by Silicon Valley’s tech giants might be unsustainable.

But woes at Situational Awareness had given investors “a welcome narrative” to explain the weakness in chip stocks, according to Max Kettner, chief multi-asset strategist at HSBC.

“We were wondering for three weeks who was driving the second leg lower in that momentum sell-off,” Kettner said, referring to the fall in shares that had been among the year’s high flyers before the recent pullback.

“Now we’ve found a narrative, and we can move on.”

Situational Awareness’s fund was stuffed full of companies that had epitomised Wall Street’s AI boom in the first half of 2026, a period when chipmakers and other providers of AI infrastructure took over from the free-spending Big Tech “hyperscalers” as market leaders.

But such bets had become increasingly popular: “long global semiconductors” was labelled the world’s most crowded trade by 82 per cent of respondents to a July survey by Bank of America.

Line chart of Share prices rebased showing AI-linked stock's wild ride

Situational Awareness’s concentrated exposure, supercharged with money borrowed from banks, left the firm particularly vulnerable to July’s abrupt market shift.

The Philadelphia Semiconductor index — which had doubled from the start of the year to its late June peak — has since slumped 20 per cent as investors fretted that the chip rally had run too far too fast. A Nasdaq index of global semiconductor stocks had lost $3tn in market value in July at the low point of this week’s slump.

Some of Aschenbrenner’s largest holdings, including Sandisk and CoreWeave, fell by nearly 60 per cent — moves that were probably exacerbated by investors’ knowledge that it might be forced to dump vast quantities of stock into a falling market.

“If you have a big player who is very levered, and starting to get squeezed out of their positions, some pockets of the market know this,” said Mike Zigmont, co-head of trading at Visdom Investment Group, explaining how the hedge fund’s deteriorating prospects were likely to have added to market selling pressure earlier in the week. “They race to sell in front of them, so they can take advantage.”

Once the sale happens, Zigmont said, “the sharks who were circling the carcass stop circling, and it just goes back to normal market sentiment”.

Stocks that Situational Awareness had exposure to also led the rebound at the end of this week. Dutch AI infrastructure company Nebius, in which the fund held a 5.6 per cent stake as of May, rose more than 30 per cent from lows hit on Wednesday.

Bloom Energy, roughly 2 per cent of which was owned by the hedge fund, rose as much as 40 per cent over the same period.

But some analysts cautioned that the sell-off may resume, in spite of the Situational Awareness rescue, as worries continue about whether stocks can withstand pressure from rising Treasury yields.

“Taking the seller out of the market helped, but there is so much money in this space that is leveraged. I think we’re going to start seeing some selling pressure again in the next two weeks,” said Peter Tchir, head of macro strategy at Academy Securities.

“There are structural issues with this market — we go up more than we should and we go down more . . . And the questions about AI spend are not going away.”

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Read Original at Financial Times →