Plummeting AI stocks have sparked margin pressure, prompting Wall Street banks to demand hedge funds post additional collateral.

According to a report by the Financial Times, as AI-related stocks have continued to plunge over the past two weeks, Wall Street banks have required some hedge funds to post additional collateral (margin) to maintain their existing leverage levels. Sources said banks including Goldman Sachs and JPMorgan Chase have issued margin calls to funds with highly concentrated positions in specific sectors, with some of the requirements automatically triggered by risk control mechanisms activated by market volatility. Data shows the Nasdaq 100 index has fallen as much as 10% from its early-June all-time high, entering a technical correction zone; SanDisk and Intel have dropped 53% and 39% respectively from their year-to-date highs, while the Philadelphia Semiconductor Index has declined roughly 25% cumulatively since the end of June. A prior Goldman Sachs report noted that total leverage among hedge funds in the first five months of this year saw its largest increase since records began in 2016, indicating many funds amplified their positions via borrowing amid the AI rally. Additionally, as of noon local time on Tuesday, long-short strategy hedge funds fell an average of 1.3%, and multi-strategy funds dropped 1.7%, marking one of their largest single-day declines since the 2020 COVID-era market volatility. Still, hedge funds as a whole have posted an average return of over 10% this year. Meanwhile, Goldman Sachs disclosed that as of June 30, approximately 16% of its prime brokerage business’s risk exposure was directly linked to AI storage chip stocks.