One of the most striking investment funds of the artificial intelligence boom has just received a hard blow from Wall Street. JPMorgan has decided to stop lending money to Situational Awareness, the hedge fund created by former OpenAI researcher Leopold Aschenbrenner, after its portfolio lost 67% of its value just during the month of July.
The episode shows to what extent leverage can transform a stock market correction into a crisis. Situational Awareness had built significant positions in companies related to semiconductors, data centers, and infrastructure for artificial intelligence, also using financing provided by large banks to multiply the size of its bets. When the stocks began to fall, the losses also multiplied.
It is worth making a clarification: Situational Awareness is a fund specialized in investments linked to AI, not a fund whose portfolio is managed automatically by artificial intelligence.
From gaining hundreds of percent to losing 67% in July
The previous trajectory explains why the case has attracted so much attention. Aschenbrenner founded Situational Awareness in 2024 after working as a researcher at OpenAI and quickly became a followed figure in Silicon Valley for his forecasts about the accelerated development of artificial intelligence.
His thesis was simple but extremely aggressive: if the advancement of AI requires increasing amounts of chips, memory, electricity, data centers, and computing power, the companies that provide that infrastructure could benefit extraordinarily.
For months it worked. The fund managed to handle more than 20 billion dollars and accumulated a return close to 270% after fees until the end of May 2026, according to data published then by The Wall Street Journal.
But the same positioning that had multiplied the profits later amplified the losses.
The fall of chip manufacturers triggered the crisis
The turning point came in July, when a widespread sell-off of stocks of semiconductor companies and other firms linked to AI directly hit the fund's positions.
The problem was not only that those actions were falling. Situational Awareness had financed part of its operations using money borrowed from its prime brokers, large financial entities that provide credit and trading services to hedge funds.
This mechanism, known as leverage, allows for greatly increasing profitability when a bet goes well, but it also works in the opposite direction when the market falls.
The consequence was extreme: the portfolio lost 67% during July, according to information conveyed by the fund itself to its investors.
What is a margin call and why did it force the fund to sell
The drop in investments triggered a margin call. It is one of the main risks of investing with borrowed money.
When a bank lends to a fund to buy assets, those very assets usually serve as collateral. If their value collapses, the entity can require the client to immediately provide more money or reduce their positions to ensure that they can repay the loan.
That was precisely what happened with Situational Awareness. The loss of value of the stocks reduced the collateral backing the loans, forcing the fund to secure new capital or sell assets quickly.
Aschenbrenner later admitted to his investors that they had been closer to suffering a permanent loss of capital than they considered acceptable.
Citadel bought a large part of the portfolio
With insufficient margin to wait for a potential recovery of the stocks, Situational Awareness ended up making a drastic decision: to sell most of its publicly traded stock portfolio to Citadel, the investment firm led by billionaire Ken Griffin.
Among the fund's public bets had been companies linked to the entire infrastructure chain of artificial intelligence and semiconductors. Before the crisis, its known positions included companies like SK Hynix, Sandisk, Nebius, and other technology manufacturers and suppliers.
The sale helped avoid a complete collapse, but it had a fundamental consequence: Situational Awareness was forced to divest assets precisely when they were falling, thus losing the opportunity to simply wait for the market to recover.
The fund did retain important private investments, among them a stake in Anthropic, one of the leading generative artificial intelligence companies.
JPMorgan decides to turn off the tap
After the episode, JPMorgan informed Situational Awareness that it would end its lending relationship with the fund, according to sources familiar with the decision cited by Reuters.
The entity was one of the main financing providers for Aschenbrenner's vehicle and its withdrawal means losing an important source of leverage to rebuild the strategy.
JPMorgan is not, however, the only bank that was working with the fund. Goldman Sachs, Citigroup, and Bank of America continue to act as brokers, while Situational Awareness has also begun to work with Clear Street, a smaller brokerage firm.
The fund is now trying to rebuild its portfolio with a structure less dependent on traditional credit and resorting, among other tools, to options whose cost is paid upfront, so that the maximum risk is more limited.
The SEC investigates the use of leverage
The losses have also attracted the attention of U.S. regulators. The Securities and Exchange Commission (SEC) has sent information requests to several of the large banks that worked with Situational Awareness.
Among them are JPMorgan, Goldman Sachs, Citigroup, and Bank of America. The supervisor wants to know, among other issues, the timing of certain operations, margin calls, and the conversations held with financial entities about the level of leverage used by the fund.
The existence of these requests does not mean that the SEC has determined that there were irregularities nor does it necessarily imply that it will open a sanctioning procedure. Situational Awareness has assured that it will fully cooperate with any request from the regulator.
The problem was not just being wrong about AI
The episode leaves a particularly relevant lesson amid the stock market boom related to artificial intelligence. The investment thesis of a fund can end up being correct in the long term and still cause enormous losses if it is financed with too much leverage.
An investor who buys a stock solely with their own money can withstand a drop and wait for a possible recovery. A fund that has borrowed large amounts to buy that same stock may not have that time: if the price drops too much, its creditors may demand additional collateral and force the sale before any rebound occurs.
That is what turned the crash of July into a crisis for Situational Awareness. The same concentrated and debt-financed bets that allowed for extraordinary profits during the rise of AI-related companies multiplied the losses when the market turned in the opposite direction.
Paradoxically, despite the 67% crash in July, the fund still accumulated a significant gain for the entirety of 2026 thanks to the extraordinary returns obtained during the previous months. But the episode has radically changed its risk profile: it has forced the sale of a large part of the portfolio, attracted the scrutiny of the SEC, and led JPMorgan to close one of its main funding avenues.