AI Shockwaves Rock Nvidia-Exposed ETFs
A seismic shift in the artificial intelligence landscape has sent shockwaves through the financial markets, with exchange-traded funds heavily invested in Nvidia taking a significant hit. The catalyst for this sudden downturn was the launch of a powerful new AI model by Chinese startup DeepSeek, which has been dubbed a “Sputnik moment” for US AI companies by tech insiders like venture capitalist Marc Andreessen.
Nvidia’s Share Price Plummets
As news of DeepSeek’s model spread, Nvidia’s share price plummeted by 17.3% by mid-afternoon on Monday. However, ETFs that offer leveraged exposure to the chipmaker suffered even more dramatic losses. The GraniteShares 2x Long NVDA Daily ETF, which targets a return double that of Nvidia’s stock, nosedived a staggering 34.5%.
Leveraged ETFs Feel the Pain
Other leveraged ETFs with significant Nvidia exposure also experienced sharp declines. The ProShares Ultra Semiconductors ETF, which has over 40% of its assets in Nvidia, tumbled 24.43% by midday on Monday. These leveraged ETFs, which carry higher fees than traditional ETFs, are popular among retail traders and speculators seeking high returns.
Institutional Investors Also Affected
However, the selling pressure wasn’t limited to leveraged ETFs. Many institutional and retail investors with a longer investment time horizon also felt the impact. The Vanguard Information Technology Index Fund, which has Nvidia as its second-largest holding, traded down 5.25% by mid-afternoon on Monday. The VistaShares Artificial Intelligence Supercycle ETF, which has a smaller exposure to Nvidia, lost about 10% by mid-afternoon.
AI Enthusiasm Meets Reality
The rapid growth of AI enthusiasm has led to a surge in assets in AI-themed ETFs. However, the sudden emergence of DeepSeek’s model has brought a dose of reality to the market. As Adam Patti, co-founder and CEO of VistaShares, noted, “Innovation and competition emerging in something as early-stage and dynamic as AI is not that surprising.”
Sorting Out the Winners and Losers
The market will need time to sort out the winners and losers in the AI space. In the meantime, investors are likely to reassess their AI capital spending outlooks. As Evan Feagans, who manages the TCW Artificial Intelligence ETF, observed, “Moves like this create opportunities. I’d expect to hear some of the biggest investors in AI reiterate their AI capital spending outlooks after they report earnings numbers.”
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