🫠 +439% to Fire Sale

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A hedge fund was up 439% this year. Now it's selling everything.

Situational Awareness, the AI fund built by former OpenAI researcher Leopold Aschenbrenner, has offloaded a large chunk of its roughly $16B public stock portfolio to Ken Griffin's Citadel, according to the Wall Street Journal.

Seems like more of an emergency evacuation.

Through the end of June, the fund returned 439%, per an investor letter seen by the WSJ. Ten grand turns into fifty-four in six months. Everyone wants in.

The catch: those returns were juiced with heavy leverage and packed into a handful of AI names.

Leverage is a lovely friend on the way up and a bailiff on the way down.

Then AI stocks cracked. Its biggest disclosed Q1 holdings, Nebius, Sandisk, Micron and CoreWeave, are all down more than 35% this month. Earlier filings showed Oracle and AMD too. Both got hammered. So did South Korean chipmaker SK Hynix.

Situational reportedly held urgent talks with several investors about selling assets or raising fresh money, then decided to do it all in one go with a single buyer.

Speed over price. Goldman Sachs and JPMorgan, two of its prime brokers, were in the room for the negotiations.

When your prime brokers join the conversation, the conversation is usually about margin.

The reporting came in pieces: CNBC first said the public book was gone, the FT first flagged the hunt for capital.

But here's the strange bit. Situational is expected to keep operating as a private investment firm.

It still holds significant private stakes, including an investment in AI startup Anthropic valued at about $5B. Private marks don't move when your screen goes red.

The fund is barely two years old and had piled up more than $20B in assets, according to the FT. Aschenbrenner became a Silicon Valley main character off the back of his 2024 essay, Situational Awareness, arguing AI would remake society.

He may still be right about AI. The leverage just didn't care.

Two things worth sitting with.

The AI trade didn't die this month. But the version of it that ran on borrowed money just got a very public stress test.

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Amazon's free cash flow just went negative. The stock rallied 5.9% anyway.

Why did all the other stocks get punished when the did this?

AWS did $42.2B in revenue, up 37% year over year. The street wanted $40.6B.

The growth rate is the real headline. AWS grew 28% in Q1. Cloud businesses that size are supposed to slow down, not speed up.

Jassy pegged it at 36.7%, the fastest in 18 quarters, and said the AI and chips businesses each cleared run rates above $25B.

The cloud is paying the AI bill, which most hyperscalers cannot say.

AWS alone threw off $16.6B of operating income. North America managed $9.1B. International scraped together $1.7B.

Group operating income landed at $27.5B against $23.6B consensus, and Amazon's own guidance topped out at $24.0B. They beat their own best case by $3.5B.

Concrete and silicon.

Operating cash flow climbed 33% to $161.4B over the trailing twelve months. Free cash flow was an outflow of $7.6B.

The gap is property and equipment spending, up $66.1B year over year. Amazon says that is AI, and going into the 5:00 p.m. call the expectation was full-year capex guidance of just over $200B.

For scale, Amazon did $200.6B of revenue this quarter. They are planning to spend a full quarter's worth of sales on buildings and chips.

The rest of the machine held up fine. Total revenue rose 20% to $200.6B versus $197.0B consensus, with North America up 16% to $116.2B (beat) and international up 15% to $42.2B (small miss on $42.7B).

Online stores hit $70.4B against $69.9B expected. Subscriptions came in at $13.7B, a whisker under the $13.8B mark.

Advertising grew 26%. Prime delivered over 40% more items same-day or overnight, with grocery and everyday essentials outrunning the rest of the business.

Guidance was light on both lines.

Q3 revenue is guided to $197B-$202B, a $199.5B midpoint against $203.9B consensus. Operating income is $22.5B-$26.5B, midpoint $24.5B, versus $25.1B expected.

Shares still went up 3.7% during the session and another 5.9% after hours. The market decided AWS mattered more than next quarter's arithmetic.

Amazon has turned itself into a capex story wearing a retail costume. As long as AWS keeps accelerating, negative free cash flow reads as investment. The moment that growth rate ticks back down, the same $200B spend starts reading as a very expensive bet.

Watch the AWS growth rate. It is now the whole thesis.

Apple beat on almost everything and the stock fell anyway.

Seems to be the theme of this earning season.

$109.42 billion of revenue. Up 16%. The biggest June quarter in the company's history.

The market's reaction? Down 2.5% after hours.

For the quarter ending June 27, Apple earned $2.02 per share against the $1.89 Wall Street wanted, on $109.42B of revenue versus a $108.85B estimate.

Then the line items got weirder.

Total product revenue landed at $78.68B versus a $77.25B estimate, and gross margin came in at 50.1%. About two of those percentage points came from tariff refunds, which is the polite way of saying the government gave some money back.

Tim Cook called it Apple's strongest June quarter ever, with double-digit growth across iPhone, Mac and Services in every geography. CFO Kevan Parekh added that the installed base of active devices hit an all-time high in every major product category and region.

So why did anyone sell?

Because the misses landed exactly where investors are watching.

Services came in at $30.74B against a $31.36B forecast. It still grew 12%. It is also the high-margin, recurring, sticky business that justifies Apple trading like a software company rather than a very good phone factory.

Greater China grew 22% to $18.82B and still disappointed, because analysts had modelled $19.58B. Growing more than a fifth and getting punished for it is a specific kind of pain.

There is also the boring explanation. The stock had already run nearly 20% over the past three months. A classic buy the rumour, sell the news read.

Everyone bought the great quarter before the great quarter arrived.

Nobody is asking whether Apple can sell hardware anymore. Mac up 29% settles that argument.

The question is whether the story that carries the valuation still works. Services and China are the two lines that set the multiple, and both wobbled in the same quarter.

Then there is the AI question hanging over all of it. Cook used the results to point at WWDC26 and the all-new Siri AI. Apple has been the slowest of the megacaps to show investors an AI story they can actually price.

If the new Siri lands, Services gets a fresh engine and the multiple holds. If it stalls, Apple is an extremely profitable hardware business wearing a software valuation.

Beating estimates and dropping 2.5% says more about what was already priced in than about the quarter.