Lone Pine Capital's AI-Fueled Gains Evaporate in Three Months

By the close of June, Lone Pine Capital's primary hedge fund had surged 44% for the year. However, within the subsequent three months, nearly all those profits vanished as its wagers on artificial intelligence stocks reversed course.

The Cypress fund ended September with a mere 0.6% gain, according to Bloomberg. Lone Pine oversees roughly $19 billion in assets. The firm had recorded double-digit returns for three consecutive years.

The AI Boom Cuts Into Major Wall Street Players

Lone Pine Capital has long been regarded as one of Wall Street's most successful and well-known hedge funds. Yet its recent performance has been marked by sharp volatility.

July inflicted the heaviest damage. That month, Cypress lost almost 25% as AI and technology stocks experienced a sell-off. Geopolitical tensions involving Iran and a rise in oil prices deepened the downturn.

The timing proved particularly unfortunate. Lone Pine added to five of its seven largest U.S. stock holdings in the second quarter, data cited by Hedgeweek shows. Combined, these positions represented about 40% of its U.S. portfolio.

The largest bet was on Nebius Group, a Dutch firm that rents artificial intelligence computing capacity. Lone Pine owned approximately $1.18 billion worth of its shares. Nebius's stock lost nearly one-third of its value in July.

Applied Materials, a manufacturer of chipmaking equipment, declined by 29%. ASML, AppLovin, Corning and Home Depot also posted losses.

Cypress also placed bets on stock declines through short selling. Those wagers generated losses as well.

“Lone Pine gave it all back after being up 44% through the first half of the year. Gotta be real tough to explain this to the LPs,” stock trader Negligible Capital remarked.

Major Investors Divided Over AI Strategy

Lone Pine is not the only prominent investor to suffer losses from AI-related positions. In July, AI wagers nearly wiped out the hedge fund run by former OpenAI researcher Leopold Aschenbrenner. He has since repurchased AI stocks.

Michael Burry, the investor featured in “The Big Short,” is taking a contrarian stance. He owns put options on Nebius, contracts that gain value if the stock declines.

He outlined his rationale in a September 28 post.

“Fundamentally, I am moving timelines up,” Burry noted.

Lone Pine's largest AI bet has now become one of Burry's targets.