I'm LongbridgeAI, I can summarize articles.Last week, retail investors poured $6.1 billion into 3x leveraged chip ETFs. On Thursday of this week, the fund plummeted 20.5% in a single day, nearly perfectly timing the acceleration of the decline. The cumulative drop in October exceeded 43%, far surpassing the 15.9% decline of non-leveraged products over the same period. The root cause lies in market skepticism regarding AI investment returns, with the ability of tech giants' aggressive spending to meet profit expectations becoming the biggest concern. Leveraged tools have multiplied the cost of this misjudgment
Retail investors' high-stakes bet on a rebound in chip stocks ended in a disastrous defeat.
Last week, investors injected a record $6.1 billion into a high-risk semiconductor leveraged ETF in a single week, attempting to buy the dip in continuously falling chip stocks. However, this bet began losing money almost as soon as it was made—instead of rebounding, chip stocks saw their decline intensify further this week. The Direxion Daily Semiconductor Bull 3X ETF (SOXL) fell another 10.8% this week, marking its third consecutive weekly decline, with a cumulative drop of over 43% since October.
The core pressure on the market stems from uncertainty surrounding returns on artificial intelligence investments. Investors are beginning to question whether the aggressive spending by tech giants on AI infrastructure can continue to deliver on profit expectations, sentiment that has weighed on the semiconductor sector. On Thursday, SOXL plunged 20.5% in a single day, marking its largest one-day drop since June 23, precisely when funds that had been flowing in continuously fled in a panic. Meanwhile, the three major US stock indices all closed lower on Friday, with the S&P 500 Information Technology sector recording its longest consecutive decline since March—three straight weeks of losses.
Record Buy-Low: $6.1 Billion Inflows in a Single Week
According to FactSet data, the Direxion Daily Semiconductor Bull 3X ETF attracted $6.1 billion in inflows last week, setting a historical record. This ETF aims to provide amplified returns tracking 300% of the daily performance of a semiconductor index, making it one of the highest-risk leveraged tools on the market.
This record inflow occurred against the backdrop of continuous declines in chip stocks and a noticeable cooling in sentiment around AI trades. The investors' logic was: the deeper the fall, the greater the potential for a rebound. FactSet data shows that funds continued to flow in until Thursday—the very day the ETF suffered a severe 20.5% single-day drop. In other words, the buy-low capital almost perfectly timed the acceleration of the decline.
In comparison, the non-leveraged iShares Semiconductor ETF fell 6.8% on the same day. While the losses were still significant, they were far less severe than those of the leveraged product.
AI Narrative Faces Skepticism: Chip Stock Valuations Under Pressure
Semiconductor stocks have seen astonishing gains this year, with the iShares Semiconductor ETF soaring nearly 59% at one point, driven primarily by the explosive growth in demand for AI chips. However, as market scrutiny of returns on AI infrastructure investments becomes increasingly strict, this rally is facing tests.
Mike Reynolds, Vice President of Investment Strategy at wealth management firm Glenmede, stated, "Semiconductors are highly sensitive to AI infrastructure construction, and AI trades are currently facing a certain degree of skepticism."
He also pointed out that after such an aggressive rally and a significant rise in valuations, it is a healthy market behavior for investors to reassess the potential returns of the AI theme. "It is a good thing that investors can raise questions in real time before the market reaches a fever pitch completely detached from fundamentals," Reynolds said.
The Double-Edged Sword of Leveraged ETFs: Amplifying Gains and Risks
The experience of SOXL once again reveals the extreme risks of leveraged ETFs as speculative tools. These products use derivatives to amplify daily returns by a multiple. While they can bring substantial rewards in a unidirectional upward market, if the direction is misjudged, losses are similarly multiplied.
Since October, SOXL has cumulatively fallen more than 43%, while the iShares Semiconductor ETF declined by approximately 15.9% over the same period. The gap between the two intuitively demonstrates the destructive power of 3x leverage in a downward market.
The intense volatility in chip stocks has influenced the single-day performance of the S&P 500 Index multiple times this month, causing overall market sentiment to fluctuate accordingly. For investors who used leveraged ETFs to bet on a short-term rebound, the cost of this "buy the dip" strategy has been far heavier than anticipated.