Saving AI trading? Citadel takes over the holdings of the "AI stock god," investment bank strategists "finally understand the reason for the big drop, and can now look ahead."

Author: Zhang Yaqi, Wallstreet Journal

Citadel's acquisition of the publicly traded stock portfolio of the hedge fund Situational Awareness is widely regarded by market participants as a key step in curbing the recent sharp decline in AI stocks. This transaction eliminated a known forced seller, providing support to the semiconductor sector, which had been in free fall.

Ken Griffin's Citadel purchased approximately $16 billion of publicly traded stocks held by Situational Awareness at a discount of over 10% on Thursday. Several market participants believe this transaction prevented the fund from massively selling off its AI positions, avoiding further panic selling. Following the news of the deal, U.S. tech stocks recorded their largest single-day gain in nearly four months, while South Korean chip-heavy stocks rebounded by as much as 18% on Friday.

The rapid reversal in the market was not solely due to Situational Awareness's "unwinding." Investors and analysts pointed out that Microsoft's strong earnings report released on Wednesday also helped alleviate concerns about the sustainability of the tech giants' AI investments. However, Situational Awareness's predicament provided investors with "a welcome narrative" to explain the ongoing pressure on chip stocks.

Three-Week Mystery: Who is Driving the Second Round of Decline?

Situational Awareness was founded by Leopold Aschenbrenner, with the fund heavily invested in semiconductor and AI infrastructure companies that led Wall Street's AI rally in the first half of 2026. During this period, AI infrastructure suppliers like chip manufacturers took over the market leadership baton from large tech "hyperscale cloud providers."

However, this trading direction has become extremely crowded. A Bank of America survey in July showed that 82% of respondents listed "going long on global semiconductors" as the most crowded trade globally. The Philadelphia Semiconductor Index doubled from the beginning of the year to its peak at the end of June, and has since corrected nearly 20%; the Nasdaq index, composed of global semiconductor stocks, had lost $3 trillion in market value by the time it hit this week's low.

The concentrated holdings of Situational Awareness, combined with leveraged financing, made it particularly vulnerable when market sentiment shifted dramatically in July. Stocks like Sandisk and CoreWeave, which were heavily held by the fund, saw declines of nearly 60%, and the market's expectations of a potential forced massive sell-off likely exacerbated the downturn.

"If a highly leveraged large player starts to be forced to liquidate, some market participants will know in advance," said Mike Zigmont, co-head of trading at Visdom Investment Group, "They will sell ahead to profit from it."

Max Kettner, chief multi-asset strategist at HSBC, stated that Situational Awareness's predicament provided the market with a "narrative" to explain the continued decline of momentum stocks over the past three weeks: "We've been puzzled for three weeks, not knowing who was driving this second leg down. Now we have found the answer and can look forward."

Citadel Steps In, "Known Seller" Exits

The immediate effect of Citadel's takeover was apparent. The stocks previously heavily held by Situational Awareness led the rebound—the Dutch AI infrastructure company Nebius rebounded over 30% from Wednesday's low, with the fund holding 5.6% of its shares as of May; energy company Bloom Energy rose as much as 40% during the same period, with Situational Awareness previously holding about 2% of its shares.

Charles-Henry Monchau, chief investment officer at Swiss bank Syz, stated: "Removing a known forced seller is essentially a positive."

The structure of this transaction is also noteworthy. According to insiders, Citadel acquired the aforementioned stock portfolio at a discount of over 10%. For Citadel, this was both an opportunity to buy at a low and a role in stabilizing the market.

Underlying Concerns Remain: Leverage and AI Valuation Questions

Despite the clear improvement in market sentiment, some analysts remain cautious about the sustainability of the rebound.

Peter Tchir, head of macro strategy at Academy Securities, warned: "Removing that seller from the market does help, but there is too much leverage in this space. I think we will see selling pressure again in the next two weeks."

He further pointed out structural issues in the market:

"We have risen more than we should have, and we are falling deeper… The questions about whether AI spending is justified will not disappear."

Meanwhile, concerns about whether the continued rise in U.S. Treasury yields will further suppress overvalued tech stocks have not been fundamentally resolved. Citadel's intervention may have eliminated the most direct "trigger" in this AI stock turmoil, but the structural pressures hanging over the market still need time to be tested.