Blue Whale fund manager blames retail investors for AI stock sell-off
A prominent London fund manager has blamed retail investors and speculative trading for a dramatic sell-off in artificial intelligence stocks that wiped 20% off the value of his multi-billion-pound fund in July.
Stephen Yiu, founder of Blue Whale Capital, said 'low-quality money' from small investors spooked by concerns over AI spending, intensifying Chinese competition and Middle East tensions had triggered the market rout. His Blue Whale Growth Fund, which manages £2.9 billion in assets, saw its value decline sharply during the month.
There's a lot of what I would say low-quality money, retail money that's been unwinding over the last few weeks. And when you lump that in with the conflict in Iran you suddenly have this mega sell-off in AI. There is also a bit of a meme stock trade going on in the AI market with the likes of SpaceX.
The fund, launched in September 2017 with £25 million in seed capital from Peter Hargreaves, co-founder of Hargreaves Lansdown, had grown to over £1 billion in assets by mid-2023. Hargreaves, whose net worth was estimated at £2.4 billion in 2020 according to The Sunday Times Rich List, remains one of Blue Whale's main backers.
South Korean chip maker hit hardest
The decline was driven primarily by a steep fall in SK Hynix, one of Blue Whale's largest holdings. The South Korean chip manufacturer's shares plunged nearly 33% in July after posting results that disappointed investors. The broader South Korean KOSPI index lost approximately 40% from its peak in late June, heading for a record monthly loss of about 35%.
The volatility forced South Korea's stock exchange to halt trading multiple times using circuit breakers, with at least eight such interventions during 2026 alone. The dramatic swings prompted South Korean Finance Minister Koo Yun-cheol to apologise for the introduction of single-stock leveraged exchange-traded funds, which analysts blamed for amplifying the market turmoil.
Despite the setback, Yiu said Blue Whale had used the sell-off to increase its position in SK Hynix at lower prices.
We're still very happy with Hynix. Its shares have become a lot cheaper and we still think the earnings are on a positive trajectory so why wouldn't we buy more?
Broader AI market turbulence
The sell-off reflected wider instability in AI-related stocks during July. While Wall Street's Nasdaq index initially fell sharply, it rallied towards the end of the week to post a slight gain. Microsoft shares jumped 18% over the period on strong sales and profit growth.
The divergent performance of chip stocks highlighted the selective nature of the AI trade in 2026. While Nvidia, a Blue Whale holding and AI chip leader, gained only between 5% and 18% year-to-date despite record earnings, rival AMD surged approximately 114% to 130%, becoming one of the year's top semiconductor performers.
Before the July decline, Blue Whale had built a strong track record. Yiu, who began his career at Hargreaves Lansdown before holding positions at New Star Asset Management, Artemis Investment Management and Nevsky Capital, launched the fund with backing from his former employer. The fund was voted Best Fund of 2020 at the Shares Magazine Awards and delivered returns of 143.2% from launch through June 2023, placing it in the top decile of the IA Global sector.
The setback comes as investors reassess valuations in the AI sector amid questions about whether technology companies can justify their spending on artificial intelligence infrastructure and whether Chinese competitors are eroding Western chip makers' dominance.
