Deja vu? After another blow to the "AI stock god," AI trading sees a rebound

After undergoing a fresh round of sharp shakeout, the AI sector saw a technical rebound on Monday. However, whether this rebound signifies a trend reversal or merely a temporary respite remains a deeply divided topic within the market.

On Monday, October 19, the Philadelphia Semiconductor Index ended its eight-day losing streak, surging more than 3% intraday and ultimately closing up 1.6% on the day.

Goldman Sachs upgraded cloud computing company CoreWeave’s rating from "Neutral" to "Buy" on the same day, and several Wall Street analysts also voiced support for fundamentals, which eased the market’s earlier panic surrounding the “AI capital expenditure peak.”

The background for this rebound is strikingly similar to the deleveraging episode several months ago, triggered by the blowup of the Situational Awareness fund.

Wall Street Insights mentioned that UBS trading desk trader Torsten Sippel clearly pointed out in his report last week that last week's market movements were highly similar to the “AI stock god” incident—both were forced liquidations of crowded positions rather than systematic, fundamentally-driven selling.

Nevertheless, as the rebound emerges, analysts warn that hedge funds’ total exposure remains high, the risk of further deleveraging has not been fully cleared, and the market is still divided on whether this rebound represents a true bottom or just a short-term pause.

"The AI Stock God" Hit Again

This is the second time in less than half a year that Aschenbrenner has suffered a major setback in his AI bets.

In July this year, the Situational Awareness fund founded by Aschenbrenner suffered losses amounting to tens of billions of dollars due to a major correction in the AI sector, setting a new record for the largest single-fund loss in hedge fund history. He was ultimately forced to sharply cut leverage and sell most of the fund’s public market positions to Citadel. In his letter to investors, Aschenbrenner stated he would "fight another day" and promised to “learn the necessary lessons.”

However, only weeks later, he made a comeback. Wall Street Insights mentioned that in September, Aschenbrenner began rebuilding his previously liquidated core positions, including AMD, Intel, SK Hynix, SanDisk, and CoreWeave. He shifted from the former high-leverage total return swap models—facilitated by investment banks like Goldman Sachs—to more flexible options structures, aiming to limit the maximum loss to the option premium paid.

The outcome was similarly dismal. Since September 8, six of the seven stocks he heavily invested in experienced sharp declines: CoreWeave down 37.4%, SK Hynix down 25.8%, SanDisk down 23.8%, DRAM down 22.9%, Bloom Energy down 18.1%, Intel down 9.4%, with only AMD registering a 9.1% gain. The average decline across the seven stocks was 18.3%.

The Market Ear dubbed this incident "Leopold Lows 2.0." DRAM prices have already fallen back to the lows observed during the last fund blowup.

CoreWeave's RSI has also fallen back to those same levels.

The CoreWeave November call options with a $95 strike price, initiated in early September, have fallen from a peak of $18 to less than $1 at present.

Position Liquidation and Technical Overselling: Conditions for Rebound Are Gathering

Goldman Sachs data suggest that the structural features of this round of selling actually laid the groundwork for Monday’s rebound.

Hedge funds have now been net sellers of global AI stocks for five consecutive trading days. According to Goldman Sachs, the cumulative net buying volume of AI stocks since 2025 has now been completely erased.

During this period, global AI stocks saw the second-largest net sell-off in nearly a year. Hedge funds’ net allocation proportion in global AI stocks fell from a peak of 31.7% in June to 26.1%, ranking in the 49th percentile over the past year; the long/short ratio dropped from 4.34 to 3.27, only in the 7th percentile for the past year.

The Market Ear analysis points out that this round of selling was mainly characterized by long position reductions. Last week, global net sell flow reached -2.1 standard deviations, with a roughly 3:1 ratio of long sales to short sales, indicating the market is actively reducing risk exposure. As forced selling gradually exhausts itself, technical support begins to emerge.

The Philadelphia Semiconductor Index has touched the lower bound of its trading range and is approaching long-cycle trend support, reaching extreme oversold levels.

At the same time, panic in the options market also saw a concentrated release this week as VXSMH (Semiconductor Volatility Index) surged sharply. However, analysts believe that according to the law of ‘extremes lead to reversal,’ periods of maximum panic often mark the bottom.

It is also noteworthy that passive options covering contributed to amplifying the previous decline. As market makers were forced to unwind delta hedges established for call options due to falling option values, this added extra selling pressure on the underlying stocks and intensified the downward momentum.

Wall Street Analysts: Fundamentals Remain Intact

The dense backing by analysts was a key pillar for Monday’s rebound.

Goldman Sachs upgraded CoreWeave from "Neutral" to "Buy." Analyst Gabriela Borges acknowledged that doubts over the company's financing ability were reasonable, but believed that after a sharp correction, the stock’s valuation had become attractive.

In her report, she noted that even if CoreWeave’s hybrid debt costs were to rise by 100–200 basis points, they would remain below a critical band, effectively capping the company’s weighted average cost of capital and maintaining a viable equity return structure.

Goldman Sachs lowered its price target from $139 to $106, but this still implies more than 40% upside from last Friday’s closing price. According to Bloomberg data, the current average analyst target price for CoreWeave is $135.23, implying upside potential of around 120%.

Star tech analyst Dan Ives compared this sell-off to a "SaaS Doomsday Panic" moment for the AI infrastructure sector, citing CoreWeave’s $104 billion order backlog as of the end of Q2, and emphasized that client commitment on the demand side has not wavered, expecting that once the panic subsides, the fundamentals-driven uptrend will continue.

Patrick Moorhead, founder of Moor Insights & Strategy, commented directly:

I think this is just another round of panic; people are looking for reasons to sell, not to buy.

In terms of overall capital expenditure, UBS Wealth Management’s CIO raised the 2026 global AI capital expenditure forecast to $900 billion, an 84% YoY increase, and expects it to rise further to $1.2 trillion in 2027, up 33% YoY. The direct trigger has been the recent broad-based cost increases across the AI server supply chain.

The stocks with the heaviest losses last week were the ones that staged the most prominent rebound on Monday. On Monday, SanDisk closed up 5.5%, SK Hynix ADR rose 4.6%, Micron gained 3%, and Intel advanced 2.4%.

Beyond the Rebound: Deleveraging Far from Over

However, the rebound is not without concerns, and multiple analysts warn that the market structure remains fragile.

UBS’s Sippel points out that although hedge funds’ net exposure has fallen to the 30th percentile of the past five years, total exposure remains above the 90th percentile, meaning there is still room for further deleveraging. He characterizes the recent market as "fragile rather than outright bearish" and believes risks are being redistributed.

CoreWeave’s credit issues have not entirely gone away. Last week, its bond price fell to levels that typically signal financial distress, and the cost of default protection spiked to all-time highs during trading. Although Goldman Sachs upgraded the rating and the stock rose as much as 7.4% intraday on Monday, it ultimately closed down 0.4%.

Sippel notes that concerns over the sustainability of AI infrastructure financing structures have become an independent pricing logic, separate from hardware demand. Even strong fundamentals at ASML and TSMC have been unable to ease these concerns effectively.

Bank of America strategist Michael Hartnett points out that as investors seek to avoid volatility from rising rates, the U.S. midterm elections, and AI thematic trades, risk aversion could dominate the market in the coming weeks.

In the week ahead, major tech giants such as Meta and Tesla will release their earnings, offering a more direct test of the real elasticity of AI capital expenditure. As for this rebound, market consensus may be: positions have been cleared, but confirmation of the bottom still awaits more explicit signals from fundamentals.