Wall Street banks demand collateral from hedge funds as AI stock rout deepens

Wall Street banks have begun demanding additional collateral from hedge funds as a weekslong selloff in artificial intelligence and semiconductor stocks deepens, sparking growing risk aversion across global markets, the Financial Times reported on Tuesday.ft

The margin calls mark a sharp reversal for hedge fund strategies that had broadly benefited from the AI boom earlier in 2026. According to Reuters ↗ 0.05%, quant funds posted their worst trading results in nearly a year by early July, with Goldman Sachs The Goldman Sachs Group, Inc. ↗ 0.41% noting that systematic managers gave back a quarter of their year-to-date returns as they "aggressively" fled AI-related trades. Hedge fund leverage fell to its lowest levels in a year, a sign of the scale of the unwinding.reuters

A Selloff That Won't Stop

The rout accelerated on Tuesday as South Korea's Kospi plunged nearly 11%, with Samsung Electronics and SK Hynix each tumbling over 13%, according to Bloomberg. The Korea Exchange halted cash trading in both the Kospi and Kosdaq gauges for 20 minutes after futures plunged. The carnage spread to U.S.-listed chip stocks last week, with Micron ↘ 3.08% falling around 6% and AMD Advanced Micro Devices, Inc. ↗ 0.78% and Broadcom ↗ 3.50% each dropping about 2%.finance.yahoo+1

The semiconductor selloff, which Forbes reported had already erased $1.3 trillion in market value by early July, has been fueled by doubts over the sustainability of AI capital spending and signs of progress in China's advanced chipmaking capabilities.forbes+1

Crypto Traders Add Fuel to the Fire

Adding another layer of risk, crypto traders have pivoted en masse into AI and semiconductor stocks, deploying strategies honed during the meme coin era. Daily volume on stock-linked contracts on Binance surged from $85 million in February to $5.5 billion in July — a 6,370% increase, according to Bloomberg data cited by Benzinga. On Hyperliquid, traders can take leveraged positions of up to 20 times on stock perpetual futures.facebook

Hedge funds are now positioning on the other side of these trades. South Korea-based hedge fund Hyperithm sources shares of names like SK Hynix through local prime brokers, then shorts the perpetual contracts on crypto exchanges to collect funding payments generated by one-sided retail demand, CEO Sangrok Oh told Bloomberg.facebook

"It's a tower of liquidity built up by retail investors, so after a while, it's almost bound to collapse quickly," Citrini Research analyst Jukan Choe told Bloomberg.facebook