Wall Street's Biggest AI Fail

Exactly two years ago, Leopold Aschenbrenner launched a hedge fund centered around one core idea: artificial intelligence was going to reshape the economy. He managed to raise $225 million from prominent Silicon Valley figures such as Patrick and John Collison, Nat Friedman, and Daniel Gross. For a while, the bet worked; through an explosive 439% return in the first half of 2026, Aschenbrenner and Situational Awareness scaled that initial seed capital into upwards of $45 billion at its pinnacle.  

Leopold Aschenbrenner was being compared to Warren Buffett, that was, until this past July. Situational Awareness had made large, leveraged bets on companies that were tied to the AI boom. Another top hedge fund, Citadel, was taking a much more aggressive view on interest rates than most of Wall Street. Its strategists warned that persistent inflation could force the Federal Reserve to hike interest rates again. This possibility of higher rates pressured expensive growth and AI stocks, many of which Situational Awareness’s portfolio was heavily exposed to. 

As AI stocks plummeted, leverage made the losses much worse. Situational Awareness lost 67% in July and was eventually forced to unwind most of its remaining $16 billion public stock portfolio.

As Situational Awareness desperately needed to get rid of its positions, Ken Griffin’s Citadel stepped in. Griffin and several top Citadel executives reportedly worked overnight analyzing the struggling fund’s positions before purchasing a large portion of them. Situational Awareness was selling at one of the worst mo

ments possible. 

Since the feared rate increase ultimately didn’t go through, many of those same AI stocks soon rebounded. Reuters reported that several stocks from the portfolio have risen since Citadel’s purchase, although exactly how much Citadel made from the deal remains unknown. 

There is no evidence that Citadel intentionally caused Situational Awareness’s collapse. But the timing demonstrates one of Wall Street’s largest advantages: having cash on hand when everyone else is forced to sell. Situational Awareness went from one of the hottest funds in the industry to unloading billions of dollars in investments, while Citadel was waiting patiently on the other side to swoop in in times of distress.