What happened: The AI trade unwound this week, and Situational Awareness, a 4x-levered hedge fund with $45B in long AI and short software positions, was the epicenter.
The setup: SK Hynix below consensus, China's immersion DUV announcement, the CXMT IPO, and rising debt fears formed the backdrop before the selloff.
The trigger: SK Hynix earnings marked the memory inflection investors had been hunting for, causing a Korean unwind that pulled down the entire AI complex.
The Citadel trade: A rate-hike warning from Citadel's macro desk preceded Citadel buying SA's entire public portfolio at 40-50 cents on the dollar.
Technology fundamentals: CDS spreads are manipulable and carry limited signal, while contract repricing should fund hyperscaler capex from operating cash flow.
What comes next: Demand for memory, compute, networking, and power is unchanged, and the real constraint is supply of materials, power, and capacity.