When Leverage Meets AI Bets: Wall Street's Old Lesson Revisited

Leopold Aschenbrenner’s Situational Awareness hedge fund lost about 67% in July as leveraged AI bets unraveled, forcing the bulk of its public holdings to be sold and leverage to be removed. The fund remains up roughly 80% for the year due to earlier gains and private investments, illustrating how a strong thesis can be overwhelmed by liquidity crunch and rapid deleveraging. The piece draws parallels to historic Wall Street blowups (LTCM, Amaranth, Archegos) to show that the core risk is not the idea itself but the speed at which borrowed capital can amplify losses when liquidity dries up. In short, removing leverage buys time, but lenders’ cash demands and market dynamics still dictate the exit, even as the AI investment thesis persists for the long term.