Is the AI trading theme making a comeback? Japanese and South Korean stocks rebound strongly

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In-Depth Analysis | From 20x Gains to Liquidation! The Cautionary Tale of the 'AI Stock Oracle': What Matters Most in Investing Isn’t Making Money Fast, But Staying in the Game

Last night's U.S. stock market was nothing short of an epic financial blockbuster.

The market delivered an extreme tale of 'collapse and euphoria': on one side, the AI investment myth came crashing down; on the other, tech giants reignited AI-related trading with strong earnings.

On one hand, Situational Awareness Fund—regarded by Silicon Valley and Wall Street as a benchmark for AI investing—was forced to sell the bulk of its public equity portfolio to Citadel following a sharp decline in AI stocks,effectively exiting its core trades in what amounted to a near-liquidation.

It is reported that Citadel acquired SA’s entire $16 billion public equity position—including both long and short positions—at a significant discount. This ranks among the largest emergency equity transactions in Wall Street history.

On the other hand, Microsoft’s stock surged to its biggest single-day gain since 2008, driven by strong earnings,Amazon also jumped sharply in after-hours trading as AWS growth exceeded expectations, sparking a broad rally across semiconductor, memory, and AI infrastructure sectors. On the same day, OpenAI announced price reductions for its smaller GPT-5.6 models. To the market, this move signaled more than just a pricing adjustment—it reinforced the expectation that AI capability costs will continue to fall, accelerating widespread adoption.

Amid multiple positive catalysts and short-covering activity, AI-related stocks—which were already rebounding—accelerated their upward momentum. Chip and memory companies, which had previously suffered the steepest declines, led the most explosive leg of the rebound.

Many investors have thus dubbed the recent low point the 'Leopold Bottom.'

Why did the collapse of a single fund paradoxically mark a market bottom?

Leopold Aschenbrenner. This former OpenAI researcher, still in his twenties, rose to prominence through a widely circulated AI research paper and subsequently launched a fund heavily concentrated in chipmakers, memory/storage companies, AI cloud providers, data centers, and other AI infrastructure firms.

Previously,‘24x Returns in One Year! Former OpenAI Star Moves to Wall Street—What’s Behind His $5.5 Billion Bet?’We’ve previously published an article providing a detailed introduction to Leopold; interested readers can click to view it.

During the most frenzied phase of the AI rally, this strategy achieved astonishing success.

According to media reports, the fund’s returns since inception briefly exceeded 2,000%,with net returns alone reaching 439% in the first half of 2026.Some reports indicated that its assets under management peaked at approximately $45 billion in early July; however, different media outlets use varying methodologies for calculating asset size and investment exposure.

What truly propelled Situational Awareness to rapid prominence wasn’t merely its bullish stance on AI, but its ability to translate that conviction into highly concentrated, leveraged trades.

At its most aggressive, the fund’s position exposure reportedly reached approximately four times its underlying capital. When stock prices kept rising, leverage turbocharged the fund’s returns like a rocket; but when AI momentum stocks reversed en masse, the same mechanism began working in reverse.

As positions declined, net asset value shrank; as net asset value shrank, leverage passively increased; and as leverage increased, the fund was forced to sell even more shares. These sales drove prices down further, triggering additional deleveraging.This is a classic 'death spiral.'

In the end, Situational Awareness transferred most of its public equity portfolio to Citadel. According to Reuters, it remains unclear whether this transaction was directly triggered by a formal margin call, but the stake acquired by Citadel was precisely the portion financed through broker-dealer leverage. The fund has not entirely disappeared—it still retains some equities and private investments such as Anthropic.

The market dubbed this event the 'Leopold Bottom' because once this massive forced seller completed its unwinding, the market suddenly realized: the most urgent, price-insensitive selling pressure may have already exited.

The prior decline wasn’t solely due to deteriorating fundamentals in the AI sector—it also reflected liquidity-driven selling pressure caused by leveraged funds being forced to offload assets.

With that selling pressure lifted, and bolstered by strong earnings from Microsoft and Amazon, short-covering, bargain-hunting capital, and earnings-driven inflows all entered the market simultaneously—fueling last night’s sharp, vengeful rebound. The Financial Times also noted that the rally partly reflected investor relief that disorderly selling risks had subsided.

If you were right about AI, why did you still get liquidated?

What’s most worth pondering for ordinary investors in this episode isn’t whether AI is a bubble or whether the 'Leopold Bottom' truly marks the market’s lowest point.

The truly important question is:Why didn’t an investor who correctly identified a long-term industry trend wait for the stock to rebound?The answer is that investing requires not only judging the direction but also managing the path.

Based on the performance analysis of publicly disclosed holdings, this portfolio has delivered a return of158.50%over the past year, while the S&P 500 index rose by only16.89%。In other words, even without using 4x leverage, this strategy of betting on AI infrastructure has still significantly outperformed the market.

Source: Futubull - Discover - Opportunities Page

The problem is that once a strategy has already generated several times the return, investors tend to attribute all the success to their own judgment and consequently keep increasing concentration and leverage in hopes of magnifying already substantial returns.

However, as returns are amplified, the portfolio’s margin for error rapidly disappears.

Without leverage, a 20% drop in stock price would still allow the investor to wait for fundamentals to materialize; with 4x leverage, the same market move could result in nearly an 80% loss of principal—and potentially trigger margin calls and forced liquidation prematurely.

Therefore, leverage does not make a good strategy better.

It simply robbed a strategy—originally suitable for long-term holding and waiting for payoff—of its ability to weather volatility.

This is also the most regrettable aspect of this situational awareness event: without leverage, it could have already been an extremely successful investment; precisely because the investor wanted faster and greater returns, they ultimately didn’t hold on long enough to see the market rebound.

The greatest risk isn't missing the rebound—it's losing the capital needed to recover.

Investors who’ve experienced the recent tech stock selloff can likely relate to that anxiety.

Your account loses in a single day what took months to earn; the companies you believe in keep falling; the market endlessly debates whether the 'AI bubble has burst'; and you’re left unsure whether to cut losses, add to your position, or just keep waiting.

It’s precisely at times like these that people are most prone to a certain impulse:

Since it’s already fallen so much, why not add leverage to bottom-fish? Even a small rebound would quickly bring me back to breakeven.

But the most critical prerequisite for bottom-fishing has never been whether you think the stock is cheap enough—it’s whether you can stay in the game even if it keeps falling.

If a stock drops 20%, it only needs a 25% gain to return to its original price.

But if your principal suffers an 80% loss, it requires a 400% gain to break even; and if leverage wipes out nearly all your capital, no rebound—no matter how large—will matter to you anymore.

So,Preserving your principal isn't conservatism, nor is it giving up returns. It’s about keeping your options open for the future.

The market never lacks another opportunity—the real scarcity is whether you still have the capital and courage to participate in the next one.

How should retail investors manage leverage?

First, never use leverage you can’t afford to lose.

To assess whether your position size is too large, don’t just consider how much you could gain if prices rise—ask yourself:If my holdings drop another 20% tomorrow, would I be forced to sell?

If the answer is yes, your position size has already exceeded your risk tolerance.

Second, don’t equate long-term bullishness with going all-in in the short term.

The AI industry may have a decade of growth ahead, but AI stocks won’t rise monotonically for ten years without any pullbacks. Valuation compression, capital outflows, shifts in earnings expectations, and rising macro interest rates can all trigger sharp corrections. A correct industry outlook doesn’t mean every entry price is right.

Third, always keep cash on hand and leave room for adjustments.

Cash is not 'money missing out on gains,' but rather the most valuable option when markets fall. Only investors who aren't fully invested or locked in by leverage retain the ability to buy in stages during true panic, instead of helplessly watching low prices appear.

Finally, don't let a single high-stakes bet determine your investment fate.

Truly effective wealth compounding isn't about making tenfold returns in six months only to lose it all next time—it's about sustaining reasonable returns that compound over time.

Those who survive in the market for ten years typically go much further than those who generate spectacular returns in a year only to get wiped out shortly after by leverage.

Staying in the game always matters more than how much you make in a single trade.

Whether the 'Leopold Bottom' ultimately holds true still requires time to verify.

The collapse of a large leveraged fund doesn't mean all risks have been resolved. Microsoft and Amazon's earnings demonstrate that AI demand remains strong, yet capital expenditures, free cash flow, valuations, and interest rate pressures will continue to affect the market.

What truly mattered last night wasn't which stock rebounded by how much, but that the same market, within a single day, revealed both sides of leverage.

It can enable a young analyst to quickly create a legendary 2,000%+ return—and just as quickly reduce that legend to near nothingness within weeks.

Seeing far ahead is certainly important, but surviving longer is even more critical.

No matter how accurate your sector outlook is, it must be paired with a position size that can withstand short-term volatility; no matter how confident you are in an investment, you should never hand your fate over to leverage ratios and margin calls.

The greatest failure in investing isn't failing to buy at the absolute bottom or missing a rally.

It's losing your ability to stay in the game before the real opportunity arrives.

Don't let leverage dictate when you exit the market. Protect your capital, manage your position size, and stay in the game—you need to be in it to benefit from the next upswing.

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