The forced liquidation of Leopold Aschenbrenner's $45B Situational Awareness hedge fund in late July removed a major source of selling pressure that had dominated AI equities all month, allowing a broad tech rally to accelerate in early August. The fund, employing up to 400% leverage on AI infrastructure stocks (semiconductors, memory, networking), suffered catastrophic losses as its core holdings (NVDA, SK Hynix, Broadcom, Nebius, CoreWeave, Bloom Energy, AMD, Intel, ORCL, Micron) dropped 30–47% on rising rates and re-evaluation of AI capex economics. Citadel acquired the entire liquidation portfolio at a discount, which signaled capitulation and removed the downward pressure. Semiconductors (SOXX) surged 8%+ in the first week of August, with SK Hynix up 30% and Nebius up 27% post-liquidation.
Software stocks, which had been battered since January (with the sector down 24% in Q1 2026 and many names off 40–50%), staged a dramatic rebound as forced selling ceased. Atlassian jumped 35% on Friday after crushing earnings; Twilio, Cloudflare also surged 20%+. HubSpot and Datadog had been crushed 19% each mid-week on earnings misses, but the sector reversed sharply. CNBC's Jim Cramer characterized Situational Awareness's collapse as a 'clearing event' that freed the market from artificial selling momentum and allowed company fundamentals to re-dominate price discovery. Enterprise software pricing-power concerns that had driven the 'SaaSpocalypse' narrative were reset when ServiceNow and Atlassian posted strong quarters.
For investors and CIOs, this signals that the AI infrastructure trade was overleveraged and vulnerable to deleveraging shocks, but underlying demand for AI chips, memory, and CPUs remains robust. The rally is now resting on earnings traction (Microsoft, Amazon showed strong Azure/AWS growth) and visibility into AI capex durability from hyperscalers. The Nasdaq is up ~5% in August after being flat YTD, recovering some June losses. Shorting sentiment has cooled, and volatility (VIX) collapsed from 26 to 18, suggesting conviction in the rebound.