By Suzanne McGee
(Reuters) -Prices of exchange-traded funds with outsize exposure to Nvidia plunged on Monday in response to news that a Chinese startup has launched a strong recent artificial intelligence model.
Technology market insiders like enterprise capitalist Marc Andreessen have labeled the emergence of year-old DeepSeek’s model a “Sputnik moment” for U.S. AI corporations, most of whose share prices slid on news that downloads of DeepSeek have already got overtaken those of U.S. rival ChatGPT on Apple’s online app store.
While Nvidia’s share price traded about 17.3% lower by midafternoon on Monday, prices of exchange-traded funds that supply leveraged exposure to the chipmaker plunged still further.
The 4 ETFs that supply day by day returns of double the gain in Nvidia were hit with the most important decline, with the GraniteShares 2x Long NVDA Day by day ETF nosediving 34.5%. Its leveraged inverse counterpart, which offers investors a gain of double any losses in Nvidia’s stock, soared nearly 34%.
“These movements were to be expected, given what we saw occur with Nvidia,” said Will Rhind, founder and CEO of GraniteShares. “We can’t begin to get a way of how much we’re seeing in outflows or inflows until after the market is closed, though.”
Other leveraged ETFs with large Nvidia exposure made equally dramatic moves. The ProShares Ultra Semiconductors ETF, which targets a return double that of the Dow Jones U.S. Semiconductors Index and has greater than 40% of its assets in Nvidia, tumbled 24.43% by midday on Monday. Those ETF providers couldn’t immediately be reached for comment.
“Volatility is what the gamblers in single-stock ETFs are in search of,” said Bryan Armour, ETF analyst at Morningstar. “People who have a foul experience now might shrink back in future, but I’m sure they’ll get replaced by others.”
The leveraged ETFs, which carry relatively high fees of near 1% compared with about 0.4% for a typical actively managed ETF, are the domain of retail traders and speculators, Armour added.
But other ETFs were caught up within the selling, including many owned by institutions and retail investors with an extended investment time horizon.
As an example, the Vanguard Information Technology Index Fund traded down 5.25% by midafternoon on Monday. Nvidia is the fund’s second-largest holding, at nearly 15% of the portfolio.
The VistaShares Artificial Intelligence Supercycle ETF lost about 10% by midafternoon. It has a smaller exposure to Nvidia – only 3% – but owns a wide selection of other AI stocks.