Jane Street takes $15 billion hit from AI bets

Jane Street lost about $15 billion in July after its investment in AI-focused hedge fund Situational Awareness and several of its own technology bets went against it, handing the Wall Street firm its first negative trading month since 2016.

The loss was disclosed internally to employees and reported on Friday, 14 August, by Reuters, citing two people familiar with the matter and a company note.

The $15 billion figure is a monthly trading loss, not an annual net loss. Jane Street is still having a highly profitable year. It has generated more than $40 billion in trading revenue so far in 2026, already ahead of the $39.6 billion it recorded in all of 2025.

Still, the July result stands out at a firm known for managing large and complicated positions across stocks, bonds, currencies, commodities, exchange-traded funds and derivatives.

Situational Awareness, run by former OpenAI researcher Leopold Aschenbrenner, was at the center of the setback. Jane Street was an investor in the externally managed fund, whose value had risen sharply during the first half of the year as bets on artificial intelligence infrastructure, semiconductor companies and related suppliers paid off.

That exposure became large as the fund’s returns increased. When AI-linked shares declined in July, Situational Awareness suffered a 67% decline in its portfolio value. Margin calls and shrinking market liquidity forced it to sell most of its public-equity holdings, with a large part of the portfolio transferred to Ken Griffin’s Citadel.

“We let you down this month,” Aschenbrenner told investors in a letter reported by Reuters.

The fund had performed so strongly before the collapse that it remained up about 80% for 2026 at the end of July. It also removed all leverage from its remaining portfolio.

Jane Street told staff that the loss at Situational Awareness left the value of its investment roughly flat for the year, although the position remained profitable over the full period in which the firm had invested.

The fund was not Jane Street’s only problem. The market maker also lost money on direct positions in technology and AI-exposed stocks. Several large memory-chip and semiconductor companies fell by around 50% during July, according to the company’s internal note.

Its hedges did not work as expected. Jane Street generally buys short-dated put options to protect itself against sudden market drops. The decline in AI stocks unfolded across much of the month instead of arriving as one abrupt crash. As a result, those short-term protections provided little relief.

The firm also took losses on long positions in non-AI Asian stocks that had outperformed earlier in the year. In effect, part of the portfolio that drove Jane Street’s second-quarter gains reversed in July.

Jane Street is not a conventional hedge fund managing outside investors’ money but trades principally with its own capital and makes markets by continuously quoting prices at which it will buy or sell financial instruments.

The firm has about 3,500 employees and access to more than 200 trading venues. Its pricing systems allow it to evaluate and hedge risks across markets in real time. Its capital base also lets it hold large positions through short periods of volatility rather than immediately selling them.

Those strengths helped turn Jane Street into a trading operation capable of generating more revenue than the trading divisions of some of the world’s largest banks. They did not prevent a concentrated group of positions from losing value together.

July was Jane Street’s first month of negative trading revenue since 2016. Its revenue was also about 25% below the peak reached at the end of June.

The firm has since closed a significant portion of the risk in the areas responsible for the loss. It has also reduced risk-taking in some other strategies and told employees that it would be “more selective about risk” after the drawdown.

The episode nonetheless raises questions about crowded AI trades and the links between proprietary trading firms, hedge funds, prime brokers and public markets.

Situational Awareness had borrowed to increase its market exposure. When prices fell, lenders required additional collateral. The resulting sales pushed down some of the same stocks that were already under pressure, worsening losses for the fund and other investors holding similar positions.

The pattern resembles previous episodes in which leverage turned a fall in asset prices into forced selling. The difference this time was the concentration in companies connected to the AI investment boom and the speed with which highly successful positions became difficult to exit.

The loss puts Jane Street back in focus less than a year after the firm faced one of the toughest enforcement actions ever taken by the Securities and Exchange Board of India (Sebi) against a foreign trading group.

On 3 July 2025, Sebi accused Jane Street entities of using coordinated trades in Bank Nifty stocks, futures and options to influence the index on expiry days and profit from much larger options positions. The regulator ordered the group to place ₹4,843.57 crore, about $508 million at current exchange rates, in escrow and temporarily barred it from India’s securities market.

Sebi’s 105-page interim order alleged that Jane Street earned ₹43,289 crore from index options between January 2023 and March 2025 while taking losses in the cash and futures markets that helped influence settlement levels.

Jane Street denied manipulating the market. It said its trades represented legitimate index arbitrage and challenged Sebi’s account of how the transactions were designed and executed.

The firm deposited the disputed amount, after which the immediate restrictions were lifted. It also challenged the regulator’s findings before India’s Securities Appellate Tribunal.