CNN tells the unfortunate tale of hedge fund Situational Awareness, "founded in 2024 by German-born Leopold Aschenbrenner when he was in his early 20s." Aschenbrenner, a former OpenAI employee, founded the hedge fund on the premise that "AI will be the dominant driver of global market returns over the next decade," according to the firm's site... Aschenbrenner managed to turn hundreds of millions of dollars into tens of billions of dollars over the course of roughly two years... That streak ended on Thursday, though, when the fund was forced to sell the bulk of its public holdings to a bigger rival after many of its investments went south. But that's only part of the story. The fund employed a risky strategy of borrowing money to purchase stocks. When the investments appreciate, the payoff can be massive. But when the investments sour, the losses can be catastrophic. The downturn in AI stocks over the course of this month, like chip makers and cloud computing providers, hit the hedge fund extra hard. It was forced to sell off many investments at a steep discount to rival hedge fund Citadel in what Aschenbrenner reportedly compared to a "bank run" in a letter to investors. "Critics pointed out that Aschenbrenner had no experience running money prior to launching his fund in July 2024, calling him more lucky than smart," writes CNBC: Some noted that his early work experience was at the doomed crypto firm FTX, where he helped now-disgraced founder Sam Bankman-Fried run a charity out of a Bahamas penthouse. Others on Wall Street, including former traders at global investment banks, noted that in light of reports Situational Awareness used as much as 400% leverage, the collapse wasn't shocking. The Wall Street Journal reports that Situational Awareness "also used options to amplify its returns. That meant that even small declines in individual names could have big impacts on Situational's portfolio." And so, as the New York Post put it, "The celebrated crystal ball of the 'Nostradamus of AI' hasn't merely gone cloudy — it has rolled off the table and shattered on the parlor floor." Wall Street breathed a huge sigh of relief last week as an AI-focused hedge fund called Situational Awareness reportedly sold most of its portfolio — reportedly down 67% last month on the backfiring of debt-fueled bets on chipmakers and assorted artificial-intelligence firms — to billionaire Ken Griffin's Citadel... The prevailing sentiment was best summed up by a veteran Wall Street sage who has seen a lot of flameouts in his day. Let's just say he wasn't impressed by Leopold Aschenbrenner, the 25-year-old German-born "Nostradamus" figure who is the founder of Situational Awareness... "Just your typical leveraged idiot who was right until he was wrong," the source said, adding that the implosion is a "one-off...." [Another trusted source] felt there was room for conversation: "A significant issue. Not viewed as systemic right now. I wonder if that changes as more problems arise." Indeed, the fact is that most of Wall Street is closely monitoring the Situational Awareness situation because they were holding many of the same positions as Aschenbrenner. Another top hedge fund manager I won't name tells me he has been getting crushed on similar investments in chipmakers essential to the AI supply chain, as well as other companies feeding off this technology. Thanks to Slashdot reader joshuark for sharing the news.

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The Washington Post looks at giant tech companies "feeding every available dollar into the cash-incinerating maw of AI machines." They warn "Tech superstars that once had oodles of cash left over at the end of each year are now flipping into the red..." [While optimists expect] huge corporate profits and a society-wide boost to wealth and well-being... questions about that AI vision are now growing more urgent: When, if ever, will this payoff arrive? And what will the fallout be for Americans if the titanic investment doesn't quickly deliver? "This AI thing better work out because if it doesn't ... we're going to have a problem," said Torsten Slok, chief economist at investment firm Apollo Global Management. AI costs and doubts are spreading. The U.S. stock market has swooned this summer over fear of the AI bubble going bust... The AI gamble sweeping up American fortunes is led by tech companies splurging on hulking data centers packed with computer chips and equipment needed to develop sophisticated AI models and deliver them to customers. In investor calls in the past week, Google, Microsoft, Meta and Amazon pointed to soaring AI-related sales and business deals. Advertisers are using the technology to tailor marketing pitches and corporations and start-ups are buying access to chatbots and other AI software to boost productivity... But this spending can only continue if AI generates an even larger avalanche of new revenue to pay for it all. Financial results released over the past week show that the AI titans' mammoth costs are largely swamping the sales boost from the technology. At Google, for every dollar of cash its business generated in the past three months, $1.15 went out the door to pay for AI computer chips and equipment, land for AI data centers and other big-ticket purchases. The company is covering the difference partly by borrowing money and selling more of its stock. Next year, five leading AI companies — Google, Amazon, Microsoft, Meta and Oracle — are projected to have negative free cash flow, which measures the cash left over after paying expenses and AI infrastructure costs. The figures, based on investment analyst projections compiled by S&P Global Market Intelligence, show a stunning reversal for what have been some of the world's most cash-generating corporations... The companies remain profitable by standard financial accounting measures that spread out the costs of their AI infrastructure spending over many years... Pessimists see a bet so gargantuan that it cannot possibly pay off. The pessimists are growing louder. The Bank for International Settlements, a typically measured institution in Switzerland that advises government bankers around the world, recently warned there was risk of "economy-wide recessions" if the AI boom falters. That could mean pain for workers and communities across the United States. "I'm not saying AI is going to go away, it's just not clear to me these guys are going to make money on it," said Christopher Wood, global head of equity strategy at investment bank Jefferies who has correctly predictedpast financial bubbles.

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An anonymous reader quotes a report from Reuters: OpenAI has discovered other instances in which autonomous agents have escaped containment as the company expands its investigation of the hacking incident at tech firm Hugging Face that drew global attention this month, two people familiar with the matter said on Friday. The new breakouts were uncovered during the company's publicly announced investigation into how one of its agents escaped what was meant to be a contained testing environment this month, the two people said, and OpenAI is now looking into those instances as well. One of the sources said that the escapes were limited in nature and that none of the agents were thought to have left OpenAI's network. An OpenAI spokesperson referred to a statement issued by the company on Tuesday that said it was reviewing "broader activity from our models" in addition to the Hugging Face intrusion. The discovery of additional rogue behavior at OpenAI, even if limited in nature, could feed growing appetite for regulation coming out of the White House and elsewhere. The expanded investigation by OpenAI was launched shortly before its primary rival, Anthropic, disclosed that its models were also responsible for a series of break-ins that led to breaches at three other companies dating back to April, according to the two sources and a third source familiar with the matter. The recent discovery of other past breakouts at OpenAI has not previously been reported. AI safety experts said the new disclosures paint a portrait of a group of cutting-edge labs whose ability to develop dangerous autonomous hacking agents outstrips their ability to keep them under control. "We have a whole industry where the people designing, developing and putting out these tools aren't keeping up themselves to responsibly develop these things and keep them safe," said Maurice Chiodo, a mathematician who works at Cambridge University's Center for the Study of Existential Risk. Reuters could not establish exactly how many incidents OpenAI investigators found or the timings or circumstances under which they occurred. The three sources said OpenAI and outside experts were examining log data from earlier in the year in a bid to understand what took place.

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Major record labels including Universal, Sony, and Warner have proposed excluding AI-generated songs from official charts unless they are "substantially human made," properly labeled, legally produced, and free from manipulation concerns. The Verge reports: The proposal goes quite a bit further than a labeling proposal put forth by the RIAA, the International Federation of the Phonographic Industry (IFPI), SAG-AFTRA, and others. That would create a set of standardized labels for AI-generated and AI-assisted music. The labels' proposal would require songs be clearly labeled, but it would also keep them off international charts unless they met specific criteria, including being "substantially human made." To be eligible, the songs would also have to respect the terms of service of whatever AI service was used, the model would have to have the rights to any data it was trained on, and "not raise stream or chart manipulation concerns." What sort of concerns and what constitutes "substantially human made" are currently vague. Sony Music, UMG, and Mom+Pop Music did not immediately respond to a request for clarification. The IFPI has thrown its weight behind the labels' proposal, though no charting organization has signaled any immediate plan to adopt the rules [...].

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Google has integrated its Nano Banana 2 image generator into Google Earth, allowing users to place AI-generated events and objects onto real satellite imagery. The company says its AI-generated images contain invisible watermarks detectable through Gemini or Lens, but the BBC found those safeguards and some third-party detection tools can be fooled into labeling manipulated Google Earth images as real. From the report: A collapsed Eiffel Tower, a sinkhole swallowing the Great Pyramid of Giza and Russian tanks in Ukraine's capital were among the images BBC Verify was able to create when testing the feature, which was rolled out on Thursday. Google has not yet responded to questions based on BBC Verify's tests, but in a social media post the company said they "take misinformation seriously" and that "we prevent image creation on harmful topics and are continually updating our protections." AI and misinformation expert Henk van Ess has highlighted the risks this feature poses, creating fake images of a non-existent nuclear power plant in Iran, a refugee camp on the US-Mexico border and a fake hospital in Gaza with a bomb crater next to it. He said Google was allowing "invented" imagery to be "welded to genuine coordinates, drawn on genuine imagery." "The forgery does not have to look convincing on its own. It inherits the credibility of the map it was born on," van Ess added. UPDATE 7/31/26 10:54 AM: Google is rolling back the image generation inside of Google Earth: "We know that people uniquely trust Google Earth for a reliable view of the world. We've seen geospatial professionals using this feature for a range of useful purposes, however we've also seen people sharing screenshots of generated imagery that appear to violate our policies. So we're rolling back this feature in Google Earth while we work on implementing stronger guardrails. It's important to note that generated images didn't appear in the main Google Earth experience for others to see and were watermarked as AI generated."

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