AI Trade Regains Footing After Hedge Fund Unwind, Earnings Reinforce Rebound

The forced unwind of the Situational Awareness hedge fund helped clear out a leveraged seller, but it is not the only reason the AI trade has regained its footing. The fund, run by former OpenAI researcher Leopold Aschenbrenner, had borrowed heavily to bet on AI infrastructure providers and against enterprise software vendors. When those trades went wrong, the resulting selloff turned into a sharp market reversal. Since then, semiconductor and data center stocks have rallied.

Recent top performers include Microsoft, Corning, Eaton, Intel and Amazon, with the entire top 10 made up of AI winners. Before the fund's collapse, nine of those 10 stocks had fallen during July. Earnings reports have supported the rebound: Microsoft posted strong Azure numbers and surprising traction for Copilot, while Amazon Web Services grew 37% and CEO Andy Jassy defended aggressive AI investment. Suppliers have also benefited from higher capital expenditure forecasts from Amazon, Alphabet and Meta, plus Microsoft's plan to invest more next year. Eaton's earnings provided further evidence.

Nvidia, up only 2% year to date before the unwinding, has been a notable gainer, helped by SpaceX's statement that it will use Nvidia chips exclusively in its data centers. Cybersecurity providers CrowdStrike and Palo Alto Networks are also among the winners, aided by concerns about AI-related cyberattacks. With one leveraged buyer on the sidelines, the AI trade looks sturdier.

Source: CNBC