AI stock sell-off hits hedge funds hard as Whale Rock loses 21.7% in July
Tech-focused funds face margin calls as semiconductor stocks tumble across markets.
1Whale Rock's steep decline
Boston-based Whale Rock Capital's flagship fund lost 21.7% in July, reducing year-to-date gains from 72.5% to 35.1%. The firm's long-only fund dropped 18.8% in its 20th anniversary year of 2026. Despite increasing stakes in SanDisk and Bloom Energy earlier, Asian market volatility hit these positions hard. The tech-focused hedge fund faced one of its worst months in recent history.
2Turmoil in AI stocks
July proved brutal for artificial intelligence and semiconductor stocks. Companies like SanDisk, Bloom Energy and CoreWeave saw significant drops amid Asian market jitters. Mega-cap tech firms including Google and Meta faced minor sell-offs as investors questioned ongoing AI spending. The sector-wide decline created ripple effects across hedge funds with concentrated tech exposures.
3Coatue and Marshall Wace fallout
Philippe Laffont's Coatue Management lost 8.3% in July, trimming annual gains to 14.3%. Marshall Wace's Eureka fund declined 6.9%, reducing YTD performance to 11.6%. The damage could have been worse without Citadel's purchase of Situational Awareness's portfolio. Margin calls triggered by AI stock plunges exposed leverage risks across the industry.
4Situational Awareness crisis
Leopold Aschenbrenner's Situational Awareness fund collapsed 67% in July - among the worst monthly performances in hedge fund history. The young fund's aggressive bets on AI companies using bank financing backfired when stock declines triggered margin calls. Citadel's acquisition of its public equity portfolio provided temporary relief but couldn't erase weeks of losses.
5Domino effect across sector
Whale Rock's Q1 positions in SanDisk and Bloom Energy turned toxic when these stocks fell 30% in July. Even minor sell-offs in mega-cap tech impacted fund performances across the board. While Citadel's intervention prevented larger collapses, it revealed systemic vulnerabilities. Risk management strategies at tech-focused hedge funds are now under scrutiny.
6Margin calls cascade
The AI stock plunge exposed highly leveraged positions across hedge funds. Young funds like Situational Awareness had used bank financing for risky bets. When valuations dropped, margin calls forced fire sales. Citadel's lifeline provided temporary liquidity but highlighted broader funding risks. The episode raised questions about excessive leverage in tech investing.
7Citadel's rescue operation
Ken Griffin's Citadel stepped in to purchase the bulk of Situational Awareness's public equity portfolio, stabilizing parts of the AI sector. While the move sparked a brief rally, it couldn't fully offset prior weeks' losses. The intervention revealed the interconnected nature of hedge fund exposures and potential systemic risks in concentrated tech bets.
8Wake-up call for industry
July's events exposed vulnerabilities in AI-focused hedge fund strategies. Established players like Whale Rock and Coatue weren't immune to tech stock volatility. Leveraged investment approaches faced ultimate stress tests via margin calls. The industry is expected to adopt more conservative positioning in the second half of 2026 after this brutal reality check.
Original article: Business Insider — Yapay Zeka hisselerindeki düşüş Hedge fonlarını vurdu