AI hype's next victims: The collapse of 'wunderkind' Leopold Aschenbrenner's fund

The recent collapse of Leopold Aschenbrenner's investment fund, once valued at $45 billion, serves as a stark warning about the speculative frenzy surrounding artificial intelligence. Aschenbrenner, a 24-year-old former OpenAI employee, had rapidly gained cult status on Wall Street by betting early on lesser-known AI stocks, diverging from the popular focus on chipmaker Nvidia.

For two years, Aschenbrenner's strategy, known as Situational Awareness, yielded extraordinary returns, multiplying his fund's assets. However, a market correction in tech stocks in July triggered an implosion. The fund lost two-thirds of its value, partly due to Aschenbrenner's heavy reliance on borrowed funds. He was ultimately forced to sell his holdings at a discount to financier Ken Griffin.

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The stock market is blind to the risks of the AI revolution.

The article criticizes the "schadenfreude" of experienced investors, suggesting Aschenbrenner lacked "situational awareness." More broadly, it highlights a widespread, almost blind faith in AI's success across global markets. South Korea's economy, heavily dependent on AI chip suppliers Samsung and SK Hynix, recently faced a crisis due to a correction in these stocks.

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The stock market is blind to the risks of the AI revolution.

Switzerland is also deeply intertwined with the AI success story. Swiss pension funds and private investors heavily favor U.S. and global indices, which are packed with American tech and AI firms. Even traditionally grounded Swiss industrial companies are now valued as "AI plays." The Swiss National Bank's portfolio also features major AI stocks like Nvidia and Meta.

The core issue is that the AI industry is largely financing its own demand through mutual investments in data centers and chip capacities. This has led to growing debt and negative cash flows for tech giants. The article questions whether these massive investments will ever become profitable, emphasizing that AI's viability hinges on all its promises materializing and generating returns. The current shock, it suggests, cannot be easily absorbed.

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The stock market is blind to the risks of the AI revolution.