Leveraged Chip ETF Bets Sour as Doubts About AI Returns Resurface

Investors poured a record amount of money into a leveraged semiconductor exchange-traded fund last week, betting that chip stocks would keep climbing. This month that wager has gone badly. Traders who leaned bullish on chipmakers are taking heavy losses as the rally loses momentum.

The cause is a familiar one. Doubts have resurfaced about whether the enormous spending on AI data centers and related hardware will produce the returns that companies and investors have been counting on. When that question gets louder, shares of the firms supplying the buildout tend to feel it first, and funds that multiply daily moves magnify the damage in both directions.

Leveraged funds aim to deliver a multiple of a benchmark's daily return, typically through derivatives and borrowing. They reset every day, so over longer stretches their results can drift well away from the underlying index. Investors who bought in near a peak of enthusiasm can see a sharp reversal erase gains quickly.

The available reporting does not pin down the exact size of the inflows or the scale of the decline, and one week of fund flows says little about where the sector goes next. Still, the pattern is a useful signal. When money crowds into the most aggressive way to ride a theme, the exit can be just as crowded. Anyone following the sector should watch whether the AI spending outlook holds up in upcoming earnings reports, since that is the question the market is currently pricing.