After enduring another round of violent flushing out, the AI sector staged a technical rebound on Monday, but whether this bounce marks a trend reversal or merely a brief respite remains a subject of deep disagreement in the market.
On Monday, October 19, the Philadelphia Semiconductor Index ended its eight-day losing streak, surging more than 3% at one point during intraday trading before closing up 1.6%.
Goldman Sachs that day upgraded cloud computing company CoreWeave from "Neutral" to "Buy," and several Wall Street analysts also spoke out in succession to support fundamentals, causing the panic sentiment of "AI capital expenditure peaking" that had briefly permeated the market to dissipate somewhat.
The backdrop of this rebound is strikingly similar to the deleveraging episode triggered months ago by the blowup of the Situational Awareness fund.
UBS trading desk trader Torsten Sippel explicitly pointed out in a report last week that market movements last week bore a high resemblance to the "AI Stock Oracle" event—both were forced liquidations of crowded positions rather than fundamentals-driven systemic selling.
However, as the rebound emerged, analysts cautioned that hedge fund gross exposure remains elevated, deleveraging risks have not been fully cleared, and whether this rebound represents a genuine bottom or merely a brief pause remains a matter of market disagreement.
The "AI Stock Oracle" Blown Up Again
This marks the second time in less than half a year that Aschenbrenner has stumbled on AI bets.
In July of this year, the Situational Awareness fund founded by Aschenbrenner suffered losses amounting to tens of billions of dollars due to a sharp correction in the AI sector, setting a record for the largest single-fund loss in hedge fund history, ultimately forcing it to drastically reduce leverage and sell most of its public market positions to Citadel. In a letter to investors, Aschenbrenner stated he would "fight another day" and promised to "learn the necessary lessons."
Yet just weeks later, he made a comeback. Aschenbrenner had already begun rebuilding the core positions that had previously blown up in September, covering names including AMD, Intel, SK Hynix, SanDisk, and CoreWeave, except that he switched from the previous high-leverage model using total return swaps with major investment banks like Goldman Sachs to flexible options structures, aiming to cap maximum losses within the premiums already paid.
The results were equally disheartening. Since September 8, six of the seven stocks he heavily bet on suffered sharp declines: CoreWeave fell 37.4%, SK Hynix dropped 25.8%, SanDisk declined 23.8%, DRAM slid 22.9%, Bloom Energy lost 18.1%, and Intel dropped 9.4%. Only AMD recorded a gain of 9.1%, with the seven names averaging an 18.3% decline.
The Market Ear dubbed this event "Leopold Lows 2.0." DRAM prices have fallen back to the lows seen during the previous blowup.
CoreWeave's RSI has also retreated to levels seen at that time.
Meanwhile, the CoreWeave November-expiry $95 strike call options he established in early September have plunged from a high of $18 to just about $1.
Position Clearing and Technical Oversold: Rebound Conditions Are Converging
From Goldman Sachs data, the structural characteristics of this round of selling precisely laid the groundwork for Monday's rebound.
Hedge funds have net sold global AI stocks for five consecutive trading days. According to Goldman Sachs statistics, the cumulative net buying of AI stocks since 2025 has been completely erased.
Global AI stocks recorded their second-largest net selling volume in nearly a year during this period. Hedge funds' net allocation to global AI stocks dropped from a June peak of 31.7% to 26.1%, sitting at the 49th percentile of the past year; the long-short ratio fell from 4.34 to 3.27, placing it only at the 7th percentile of the past year.
The Market Ear analysis pointed out that this selling was predominantly long reductions. Last week's global net selling flow reached -2.1 standard deviations, with the ratio of long selling to short selling at approximately 3 to 1, indicating the market is in a phase of actively reducing risk exposure. Once forced selling gradually exhausts itself, the technical support logic begins to emerge.
The Philadelphia Semiconductor Index has touched the lower bound of its trading range while approaching longer-cycle trend support lines, with oversold levels reaching extremes.
Meanwhile, panic sentiment in the options market also concentrated its release this week, with VXSMH (the semiconductor volatility index) surging sharply. But analysts argue that, according to the principle of "extremes inevitably reverse," the moments of maximum market panic are often the bottom.
Notably, passive options unwinding also amplified the prior decline to some extent. Delta hedge positions that market makers purchased when establishing call option positions were forced to be closed as option values shrank, creating additional selling pressure on the underlying stocks and intensifying downward momentum.
Wall Street Analysts: Fundamentals Have Not Been Broken
The reason the rebound could occur on Monday is inseparable from the密集 endorsement at the analyst level.
Goldman Sachs upgraded CoreWeave from "Neutral" to "Buy." Analyst Gabriela Borges acknowledged reasonable doubts about the company's financing capacity but believed that after the sharp decline, valuations have become attractive.
She noted in her research report that even if CoreWeave's blended debt cost rises by 100 to 200 basis points, it would not breach this range, effectively setting a ceiling on the upside of the weighted average cost of capital, keeping the equity return structure intact.
Goldman Sachs lowered its target price from $139 to $106, but that still implies more than 40% upside from last Friday's closing price; according to Bloomberg statistics, the current average analyst target price for CoreWeave is $135.23, implying approximately 120% upside.
Star tech analyst Dan Ives likened this selloff to an "SaaS doomsday panic" moment in the AI infrastructure space, citing CoreWeave's approximately $104 billion backlog at the end of the second quarter, emphasizing that demand-side customer commitments have not wavered, and predicting that a fundamentals-driven uptrend will resume after the panic subsides.
Moor Insights & Strategy founder Patrick Moorhead put it bluntly:
I think this is just another round of panic. People are looking for reasons to sell, not reasons to buy.
At the aggregate capital expenditure level, UBS Wealth Management's CIO raised its 2026 global AI capital expenditure forecast to $900 billion, representing 84% year-over-year growth; for 2027, it further rises to $1.2 trillion, up 33% year-over-year. The direct trigger is the comprehensive cost escalation across the AI server supply chain recently.
The most obvious rebound on Monday was precisely in the names that fell the hardest last week. On Monday, SanDisk closed up 5.5%, SK Hynix ADR closed up 4.6%, Micron closed up 3%, and Intel closed up 2.4%.
Above the Rebound: Deleveraging Is Far From Over
However, this rebound is not without its concerns. Multiple analysts warned that the market structure remains fragile.
UBS's Sippel pointed out that although hedge fund net exposure has fallen to the 30th percentile of the five-year history, gross exposure remains above the 90th percentile, leaving room for further deleveraging. He characterized the recent market as "fragile rather than outright bearish," believing that risk is being redistributed.
CoreWeave's credit issues have not fully dissipated. Last week, its bond prices fell to levels that typically signal financial distress, and the cost of bond default protection briefly climbed to an all-time high during intraday trading. Despite the Goldman Sachs upgrade, the stock rose as much as 7.4% intraday on Monday but ultimately still closed down 0.4%.
Sippel noted that market concerns about the sustainability of AI infrastructure financing structures have formed a pricing logic independent of hardware demand, and neither ASML's nor TSMC's strong fundamentals have been able to effectively calm these doubts.
Bank of America strategist Michael Hartnett warned that as investors seek to hedge against rising interest rates, U.S. midterm elections, and volatility from AI-themed trades, risk-averse sentiment could dominate the market in the coming weeks.
In the week ahead, tech giants including Meta and Tesla will successively disclose earnings, and the true elasticity of AI capital expenditure will face more direct data verification. For this rebound, the market's consensus may be: positions have been cleared, but confirmation of a bottom still requires fundamentals to provide a clearer answer.
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