Jim Cramer called the forced liquidation of Situational Awareness a "clearing event" that could mark a bottom for battered AI stocks.
But the last comparable blowup offers a warning. More than five years after Archegos Capital collapsed, most of the stocks it was forced to sell remain below their liquidation prices.
Cramer Sees a Bottom
"I have always believed that when you clear out the people who have to sell, like this gentleman, you get a bottom," Cramer said last Thursday on CNBC.
"This is a clearing event," he added. "Because he’s not the only one. There are so many people margined in these same stocks."
Situational Awareness went from Wall Street’s hottest AI fund to a forced seller in less than a week.
As the fund unraveled under mounting margin pressure, investors said Leopold Aschenbrenner stopped taking calls before Situational sold most of its public stock portfolio to Ken Griffin’s Citadel in an overnight deal.
The fund emerged with only a small unlevered stock portfolio and its private holdings.
The Archegos Warning
Andrew Walker of Yet Another Value Blog argued that Archegos was the last comparable sector-wide liquidation he could remember.
Forced sellers normally appear to offer bargains because they must sell into whatever liquidity is available.
But Walker noted that major Situational positions including SanDisk Corp. (NASDAQ:SNDK), Bloom Energy Corp. (NYSE:BE) and Nebius Group N.V. (NASDAQ:NBIS) moved together and rebounded around the unwind, leaving little evidence of the kind of fire-sale dislocation bargain hunters might expect.
Bill Hwang’s fund Archegos held more than 10% of companies including the businesses then known as ViacomCBS and Discovery, compared with Situational’s roughly 2% to 3% positions in stocks such as Nebius and Bloom.
That heavier concentration should have made the Archegos liquidation an even stronger candidate for a rebound, Walker argued. Instead, his analysis found that most of the basket continued falling for months or years, despite gains in the wider market.
Walker’s implication is that Archegos’s leveraged buying may have helped support those prices in the first place. Once that buyer disappeared, the forced selling did not necessarily create a bargain.
Why It Matters
Not many people are betting on a crash yet. Traders on Polymarket currently assign a 19% chance that the AI bubble bursts by Dec. 31, with about $2.9 million traded.
Cramer may be right that the forced selling has ended. Archegos suggests that the end of a liquidation and a durable market bottom are not necessarily the same event.
Image: Shutterstock
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