Investor Ross Gerber said Sunday that the collapse of former OpenAI researcher Leopold Aschenbrenner‘s AI-focused hedge fund Situational Awareness was a lesson in the dangers of excessive leverage rather than a failure of the artificial intelligence investment thesis.
Leverage Can Destroy Years Of Gains
Gerber Kawasaki CEO, in a post on X, said that leverage can amplify returns when markets rise but magnifies losses just as quickly when conditions reverse, often wiping out years of gains in a matter of days.
“That is why the collapse of a highly leveraged AI strategy is not really a battle between the tortoise and the hare. It is a lesson in leverage, hubris, and inexperience,” he said.
According to Gerber, investors using leverage eventually become dependent on favorable stock prices, continued financing and counterparties willing to support their positions rather than the long-term success of the businesses they own.
He contrasted that approach with Warren Buffett’s investing philosophy, adding that extraordinary wealth can be built without reckless leverage and that compounding, while slow at first, becomes incredibly powerful over decades.
Citadel Deal Followed AI Fund’s Forced Unwind
Last week, Ken Griffin‘s Citadel LLC. acquired most of Situational Awareness’ public equities portfolio after the AI-focused hedge fund was forced to unwind positions during the recent AI stock selloff in July.
The fund had grown to roughly $20 billion after returning 439% net through June before seeking fresh capital and ultimately unwinding its public portfolio.
Investing vs. Betting
Gerber said the long-term AI investment thesis remains intact on continued demand for semiconductors, data centers, power, cooling and networking infrastructure.
He said the mistake was leveraging that thesis several times over in an attempt to generate outsized returns in a short period.
“That is not investing. It is betting,” Gerber added.
The earnings season has also reinforced the AI trade, with S&P 500 companies beating earnings estimates by an average of 27% this quarter, while Nasdaq 100 companies are exceeding expectations by 55%.
Amazon.com Inc. (NASDAQ:AMZN) last week raised its projected 2026 cash capital expenditure forecast to about $220 billion, with CEO Andy Jassy saying the company already sees “striking” demand for 2028.
Benzinga edge rankings indicate AMZN has a Momentum score in the 70th percentile and a Growth score in the 88th percentile.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo Courtesy: Joyseulay on Shutterstock.com
Login to comment