AI Stock Plunge Triggers Margin Call Pressure, Wall Street Banks Demand Hedge Funds to Increase Collateral

BlockBeats News, July 29th, according to the Financial Times, as AI concept stocks have been plummeting in the past two weeks, Wall Street banks have asked some hedge funds to provide additional collateral to maintain their current leverage levels. Sources said that banks such as Goldman Sachs and JPMorgan have issued margin call notices to funds with high concentration in specific industries, some of which require risk control mechanisms triggered by market volatility to be automatically executed.

Data shows that the Nasdaq 100 index has retreated 10% from its early June peak, entering a technical correction phase; SanDisk and Intel have fallen 53% and 39% from their yearly highs respectively, and the Philadelphia Semiconductor Index has dropped by about 25% since the end of June. A previous report by Goldman Sachs indicated that total leverage of hedge funds in the first five months of this year saw the largest increase since 2016, indicating that many funds have leveraged their positions through borrowing in the AI market.

Furthermore, as of Tuesday noon local time, long-short strategy hedge funds have, on average, fallen by 1.3%, while multi-strategy funds have declined by 1.7%, marking one of the largest single-day drops since the intense market volatility of 2020 due to the pandemic. However, hedge funds have still recorded an average return of over 10% this year. Meanwhile, Goldman Sachs disclosed that, as of June 30th, around 16% of its prime brokerage's risk exposure is directly tied to AI semiconductor stocks.