Hedge fund VARA plunged 33% in a "brutal" October for AI stocks

Hedge fund Value Aligned Research Advisors, which made an all-in bet on AI concepts, suffered a heavy blow last month, plunging 33% in a single month as AI stocks faced a painful valuation re-rating. According to a person familiar with the matter who requested anonymity to discuss non-public information, VARA's portfolio is similar to Leopold Aschenbrenner's Situational Awareness fund. The institution told Class C shareholders that despite the sharp drop, its fund is still up 13% year to date. In July, the hedge fund's performance was even worse, at one point tumbling 44%. The weeks-long selloff stemmed from growing market concerns that tech companies have taken on hundreds of billions of dollars in debt to build bigger and better AI models, yet it remains unknown whether AI can generate the massive profits needed to cover that debt. The selloff sent the Nasdaq 100 down 6.7% in October, its biggest drop in nearly a year and a half. The pain has continued this month. On Thursday, the Philadelphia Semiconductor Index, which tracks chip bellwethers including Nvidia, Intel and Advanced Micro Devices, plunged 12%, its biggest single-day decline since March 2020.