The collapse at Situational Awareness, a hedge fund led by a young AI specialist, reveals much about today's investor attitudes and how to steer clear of similar pitfalls.

That same market drop which sank Situational Awareness has placed one of our preferred tech CEFs on offer. Even better: This reliable dividend payer now trades near discount levels unseen for over ten years.

An AI Fund Fueled by Hype and Borrowing

After his time at OpenAI ended in April 2024, Leopold Aschenbrenner published an essay titled "Situational Awareness" that drew wide notice and inspired his hedge fund's name.

His rising profile helped him gather $225 million, which by June 2025 had ballooned to $45 billion thanks to new money and leverage reaching 400 percent, per CNBC reports.

Everything changed with the recent chip stock decline that pushed the main sector ETF, the VanEck Semiconductor ETF (SMH), down roughly 25 percent from its year-to-date high to the bottom of the fall. (It has since recovered part of that loss and sits about 15 percent below its 2026 peak).

Aschenbrenner then sent investors a brief note with six words that understated the situation: "We let you down this month."

Indeed, Situational Awareness faced a margin call and risked total loss. Additional damage could come from tax bills for outside partners tied to the forced sales needed to cover those calls.

Put simply, the fund had taken on too much borrowed money and lacked cash to repay it.

The fund's big gains were not truly from AI insight or smart stock picks. Situational Awareness had latched onto a popular trend and used maximum borrowing to follow it, all without proper risk controls.

In market terms, Aschenbrenner's approach delivered no real alpha, only amplified market moves.

Steady Investors Stay Ahead

That distinction counts: an investor who avoided excess borrowing and simply held SMH, the leading semiconductor ETF, has fared well without margin issues and has watched the position rebound gradually after the hedge fund's forced sales.

Making matters worse, Situational Awareness sold its listed holdings to Citadel, one of Wall Street's established hedge funds, which is already benefiting from the transaction.

One curious detail stands out: Situational Awareness is still ahead by 80 percent for the year, thanks to its stake in private Anthropic shares (a separate matter we will skip here).

A Prudent Tech Option Now at a Fresh Discount

The errors that sank Situational Awareness, including extreme leverage, limited experience and weak risk oversight, disappear when choosing a well-managed closed-end fund, particularly those we select and review via our CEF Insider service.

These vehicles offer broad holdings, expert oversight and, when leverage appears, only moderate amounts that boost gains in up markets while limiting downside exposure, unlike the Situational Awareness case.

Even better, the semiconductor drop lets us buy one of our top tech CEFs at a new discount: the Columbia Seligman Premium Technology Growth Fund (STK), now trading at an 8.9 percent discount to net asset value as of this writing.

STK's Discount Matches 2014 Levels

The markdown looks excessive for this strong fund, which owns NVIDIA (NVDA), Bloom Energy (BE), Lam Research (LRCX) and other innovative firms riding the technology wave.

Despite the discount, performance has held up this year, though the chip selloff trimmed results as expected.

A 2026 Return That Tops the Market

The recent drop reduced STK's total returns this year (shown in purple), yet the fund still leads the S&P 500. This aligns with its longer track record.

STK has risen more than 1,300 percent since its 2009 launch, and the chart shows its edge over the S&P 500 continuing to grow.

The yield appears modest at 3.8 percent for a CEF. Yet this stems from the rising share price, and the fund has delivered steady payouts plus occasional year-end extras.

Given the strong long-term total return, we accept a lower current yield to avoid the troubles that hit funds like Situational Awareness.

4 CEFs Benefiting From AI's Next Phase (While Delivering 10% Annual Cash)

STK marks only the beginning of our AI strategy at CEF Insider. It provides a solid growth angle backed by dividends.

We now expand to capture 10 percent-plus yields as AI reaches more of the economy.

Our approach uses four indirect funds that hold quieter AI beneficiaries such as insurers, banks and drug makers. These firms apply AI to improve choices or speed new treatments.

The four CEFs own the most forward-looking names across these areas. All trade at discounts today, but that may change as investors notice both the markdowns and the 10 percent average payout.

Visit the link below for details on all four income and growth funds plus a free report with their names, symbols and current buy prices.

Further STK Research:

Warren Buffett Dividend Stocks
Dividend Growth Stocks: 25 Aristocrats
Future Dividend Aristocrats: Close Contenders

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.