The margin unwind that shook AI stocks
Over 3% of South Korean adults were hit with margin calls in July, setting off a wave of forced selling. This primarily affected AI-driven stocks, with many investors placing heavy bets on companies like SK Hynix and Samsung. As the pressure mounted, the impact spread further when Leopold Aschenbrenner’s hedge fund, Situational Awareness LP, was forced to liquidate all its holdings due to a margin call.
Aschenbrenner’s investment approach revolved around AI stocks and leveraged positions. However, as the margin unwind continued, the forced selling caused steep losses. His market-beating returns were largely due to his AI stock picks and the use of significant leverage. Now, with the margin unwind starting to fade, investors are beginning to refocus on the underlying business fundamentals rather than short-term volatility.
The sell-off was not caused by poor performance or flawed business models, but by the mechanics of margin calls and the subsequent liquidity crunch. As the pressure subsides, three companies are emerging as particularly strong candidates in this evolving landscape.
Alphabet: The AI backbone of the digital world
Alphabet has evolved beyond being a search engine provider into a leading force in the AI revolution. Its cloud platform serves as the foundation for companies developing and deploying AI applications. That part of the business experienced an 82% increase in revenue year-over-year. Alphabet as a whole reported 24% year-over-year revenue growth, with Google and YouTube both expanding their market share.
Alphabet’s Gemini app now has 950 million monthly active users, showing strong adoption of its AI tools. Its autonomous vehicle arm, Waymo, is already in operation in several U.S. cities, transporting passengers. Analysts project that the autonomous vehicle market will see an annual growth rate of 20.2% through 2033, and Alphabet is ahead of the curve.
Grand View Research forecasts a long-term 20.2% annualized growth rate for the autonomous car industry. With Alphabet already making significant inroads, the company is well-positioned to benefit from this expansion over the coming years.
Micron and Nebius: High growth with visibility
Micron Technology has taken a leading role in the memory chip market, much like how Nvidia dominates GPU manufacturing. The recent stock decline has led to a forward price-to-earnings ratio of just 5.6, making it one of the most attractive valuations in the tech sector. Micron’s revenue has grown more than fourfold year-over-year, and the company anticipates more than 20% sequential growth in its next fiscal quarter.
Micron has also secured long-term supply agreements with its customers. These contracts provide clear revenue visibility and significantly reduce the risk of a memory chip market downturn. Investors who are wary of the cyclical nature of Micron’s business may find comfort in these agreements, as they offer greater stability and long-term predictability.
Nebius Group, once a major holding in Aschenbrenner’s portfolio, is in a different position. Sales for the company jumped 684% year-over-year in the first quarter, reaching $399 million. A major five-year, $27 billion contract with Meta Platforms demonstrates the strength and potential of Nebius’ business model.
Nebius is also working on expanding its power contracts. The company now aims to secure more than 4 gigawatts of contracted power by the end of the year — a significant increase from the 3 gigawatts expected in February. As more data centers are built and long-term deals are signed with major tech companies, Nebius’ revenue is expected to continue growing.
The recent correction in the AI stock market was severe, but it was not the result of poor performance. Instead, it stemmed from forced selling due to margin calls and liquidity issues. With that pressure beginning to fade, companies with solid fundamentals and clear long-term growth trajectories are gaining renewed interest from investors.
For now, Alphabet, Micron, and Nebius appear to be three of the most compelling options in the space. Their respective positions in the AI and memory chip markets, combined with strong revenue growth and long-term contracts, suggest that they are well-placed to benefit from the ongoing AI boom.