D1 Capital Outperforms Markets With Resilient Longs, AI-Driven Strategy

Dan Sundheim's D1 Capital Partners weathered a storm in 2025, navigating market turbulence and a wave of hedge fund de-leveraging with notable success. Sundheim, who famously lost $4 billion when retail investors squeezed short positions in GameStop in 2021, credited past lessons for the firm's resilience this year. D1's stock portfolio returned 28% through November, according to a source familiar with the matter.

The firm was prepared when market volatility flared in March and April, driven by U.S. tariffs and conflict in the Middle East. Sundheim positioned D1 with a focus on long-term bets, which helped it avoid the fallout of another short squeeze, this time involving companies like Opendoor Technologies and Kohl's. In his September investor letter, he emphasized how the firm's experience with past turmoil informed its strategy.

D1's long portfolio outperformed the MSCI World Index by 20% through August, while its short book beat the benchmark by 7% before fees. The firm labeled its top-performing stocks as "transformational bets," including Siemens Energy AG and Philip Morris International Inc. These gains were attributed to D1's strategic diversification and proactive risk management, which Sundheim highlighted in his communication to investors according to Bloomberg.

How Markets Reacted

Sundheim's investor letter described how the firm's approach to risk evolved since the 2021 GameStop incident. D1 started the year with the highest net exposure to non-U.S. companies in its history, a move that proved beneficial as global markets became increasingly unpredictable. The firm avoided being caught off-guard during the short squeeze in July, when social media-driven retail investors pushed up stock prices of heavily shorted firms. Sundheim noted that D1's diversified short book and strengthened risk controls allowed it to remain positioned even as these events unfolded as reported by Bloomberg.

Meanwhile, D1's performance contrasted with the struggles of many of its peers. The hedge fund industry experienced its largest de-leveraging event since 2021 as investors retreated from high-risk bets. D1's 23% gain through August in its stock-picking portfolio positioned it as a standout in a challenging market environment.

What This Means for Investors

For investors in D1, Sundheim's ability to adapt based on past experiences has proven valuable. The firm's 2025 performance highlights the importance of strategic diversification and risk management in volatile markets. Sundheim also pointed to artificial intelligence as a key driver for future opportunities, predicting AI will create more shorting opportunities as adoption expands across industries.

The firm's success in 2025 also underscores the ongoing debate over the role of retail investors in shaping market dynamics. The short squeezes seen in 2021 and again in 2025 demonstrate how social media and retail trading platforms can influence stock prices, particularly in heavily shorted names. D1's proactive stance in curbing exposure to such plays suggests a growing industry-wide recognition of this phenomenon.

Looking ahead, D1's performance in 2025 may serve as a blueprint for how hedge funds can manage similar events in the future. The firm's emphasis on long-term value and transformational investments could help it maintain its edge in an increasingly unpredictable market environment.