Value Aligned Research Advisors (VARA), a hedge fund heavily exposed to artificial intelligence stocks, suffered a 33% loss in October as a sharp selloff in technology shares triggered significant losses across concentrated AI investment strategies, according to a report by Bloomberg.

The Princeton, New Jersey-based manager told investors holding Class C shares that its fund remained up 13% year-to-date despite the October drawdown. The latest decline follows a 44% loss in July, highlighting the extreme volatility experienced by funds pursuing leveraged AI-focused strategies.

The losses come amid growing concerns over the profitability of large-scale AI investments and the debt financing required to support technology infrastructure expansion. The Nasdaq 100 fell 6.7% in October, its steepest monthly decline in more than 18 months, while the Philadelphia Semiconductor Index dropped 12% on Thursday as selling pressure intensified across chipmakers.

VARA, whose investment approach resembles that of Leopold Aschenbrenner's Situational Awareness, said it remained financially stable despite the market disruption. In a letter to investors, the firm reported no material changes to its counterparty relationships, maintained excess margin and said portfolio leverage remained at the lower end of its historical range.

The drawdown reflects mounting pressure on hedge funds running concentrated AI portfolios, as crowded positions and leverage amplify losses during abrupt market reversals. Situational Awareness, which grew to approximately $45bn in assets within two years, was itself forced to unwind positions following margin calls during July's technology selloff, selling AI-related holdings to Citadel at a discount.