Wall Street banks have demanded more collateral from hedge funds as a rout in AI stocks accelerates, triggering heavy losses. Banks asked funds with concentrated holdings to provide additional collateral to maintain leverage levels, according to four people familiar with the matter.

The Nasdaq 100 briefly entered correction territory, falling 10 per cent from its June high. Sandisk and Intel dropped 53 per cent and 39 per cent from peaks, while the Philadelphia semiconductor index lost a quarter of its value since late June. Goldman Sachs and JPMorgan Chase were among banks requesting extra collateral.

Goldman noted the largest cumulative increase in gross leverage since 2016 in the first five months of the year. Long-short strategies fell 1.3 per cent and multi-strategy funds 1.7 per cent on Tuesday, the worst day since 2020. Hedge funds remain up over 10 per cent for the year.

Concentration risk has grown, with the S&P 500's top 10 companies representing 40 per cent of the index, surpassing dotcom bubble levels. Goldman reported 16 per cent of its prime brokerage book exposed to AI memory stocks as of June 30.