Retail investors' big bet on a rebound in chip stocks ended in a miserable defeat.
Last week, investors poured a record $6.1 billion into a high-risk semiconductor leveraged product ETF in an attempt to buy low on the continuously declining chip stocks. However, this bet began to lose money almost as soon as they entered. This week, not only did chip stocks not rebound, but the decline also intensified. The Direxion Daily Sem token, which is issued through nductor and Bull, and leveraged 3X through ETF ( SOXL ), fell another 10.8% this week, marking the third consecutive week of declines, with a cumulative drop of over 43% since October.
The core pressure on the market comes from the uncertainty of returns on artificial intelligence investments. Investors have begun to question whether the aggressive spending of tech giants on AI infrastructure can continue to meet profit expectations, a sentiment that is putting pressure on the semiconductor sector. On Thursday, SOXL tumbled 20.5% in a single day, marking the largest one-day decline since June 23, which coincided with the point when funds that had been flowing in continuously began to flee. At the same time, all three major U.S. stock indices closed lower on Friday, with the S&P 500 Information Technology sector experiencing the longest consecutive decline since March—three consecutive weeks of losses.
Record-Breaking Bottom-Fishing: $6.1 Billion Flowed In in a Single Week
According to FactSet data, the Direxion Daily Sem token issued by nductor Bull 3X ETF attracted a record $6.1 billion in capital inflows last week. This ETF is designed to provide amplified returns tracking daily price fluctuations of semiconductor indices by 300%, and it is one of the highest-risk leveraged instruments on the market.
This record-breaking inflow occurred against the backdrop of chip stocks having been in continuous decline and a clear cooling of trading sentiment for AI. Investors' logic is: the more it falls, the greater the potential for a rebound. FactSet data shows that funds continued to flow in until Thursday – and it was on Thursday that this ETF stock suffered a 20.5% plunge in a single day. In other words, the funds looking to buy at bottom prices almost precisely timed their entry at the point when the decline accelerated.
AI Narrative Under Question: Chip Stock Valuations Under Pressure
Glenmede, the vice president of investment strategy at the wealth management company, stated, "Semiconductors are extremely sensitive to the infrastructure construction of AI, while AI transactions are currently being questioned to some extent."
He also pointed out that after experiencing such a radical upward trend and with valuations having risen significantly, it is a healthy market behavior for investors to re-evaluate the potential returns of the AI theme. "It's a good thing that investors are able to raise questions in real-time before the market reaches a frenzied peak that is completely detached from fundamentals," said Reynolds.
The double-edged sword of leverage ETF: It amplifies profits, but also increases risks.
The experience of SOXL once again reveals the extreme risks associated with leveraging ETF as a speculative tool. Such products use derivatives to amplify daily returns, which can lead to substantial profits during periods of unilateral market gains. However, if the direction of the market is misjudged, losses can also be amplified exponentially.
The sharp fluctuations in chip stocks have influenced the daily performance of the S&P 500 index on multiple occasions this month, causing the overall market sentiment to rise and fall accordingly. For those investors who bet on a short-term rebound using leverage ETF, the cost of this "bottom-fishing" effort has proved to be much heavier than expected.
