Investors poured a record $6.1 billion of inflows into the Direxion Daily Semiconductor Bull 3X ETF (SOXL) last week as a risky bet to buy the dip, marketwatch.com reported. Semiconductor shares continued a sharp October slide, leaving the leveraged fund on track for a monthly drop exceeding 43%.
Leveraged Semiconductor Fund Drops as AI Skepticism Triggers Sell-Off
- The Bet: Market participants drove a record $6.1 billion into the 3x leveraged semiconductor fund last week to capitalize on falling chip valuations, according to marketwatch.com.
- The Fallout: The fund fell another 10.8% and booked its third straight weekly decline, with an October drop projected past 43%, marketwatch.com reported.
- The Catalyst: Renewed skepticism regarding investment returns on the artificial intelligence infrastructure buildout triggered a broader sell-off across tech equities, according to marketwatch.com.
Valuation Realities Hit the Artificial Intelligence Trade
Chip stocks have soared this year as processing hardware remains vital for artificial intelligence development, marketwatch.com reported. But October introduced mounting pressure as traders questioned whether the aggressive pace of corporate spending on AI infrastructure is sustainable. That uncertainty fueled severe daily swings across technology equities.
“The semis have been so sensitive to the AI-infrastructure buildout,” Mike Reynolds, vice president of investment strategy at wealth-management firm Glenmede, said in a phone interview, according to marketwatch.com. “The AI trade has come under some skepticism here.”
Those fluctuations created a speculative frenzy around leveraged exchange-traded funds designed to amplify daily returns via derivatives. The Direxion Daily Semiconductor Bull 3X ETF aims to provide 300% of the daily swings of a popular underlying index. Daily inflows persisted until Thursday, when semiconductor shares dropped precipitously, marketwatch.com reported.
Selling Pressure Across Semiconductor Equities
Thursday brought a 20.5% plunge for the Direxion Daily Semiconductor Bull 3X ETF, marking its worst day since June 23, according to FactSet data cited by marketwatch.com. By comparison, the iShares Semiconductor ETF (SOXX) fell 6.8% on the day.
Broader market indices also finished lower as the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite closed in the red, marketwatch.com reported. The S&P 500’s information-technology sector registered its third consecutive week of losses, its longest weekly losing streak since March, according to FactSet.
| Fund Name | Ticker | Recent Action | October Trajectory |
|---|---|---|---|
| Direxion Daily Semiconductor Bull 3X ETF | SOXL | Fell 20.5% on Thursday; down 10.8% over the final week | Projected monthly drop exceeding 43% |
| iShares Semiconductor ETF | SOXX | Dropped 6.8% on Thursday | Projected monthly loss of 15.9% |
Reassessing the Chip Rally After Massive 2026 Gains
Despite recent losses, the iShares Semiconductor ETF remains up almost 59% for the year, according to marketwatch.com. The October reversal has prompted market participants to reevaluate valuations following an extended, aggressive rally.
“At these valuations and after a rally that’s been this aggressive, it’s healthy that investors are taking a sober second look” at potential returns from the artificial intelligence theme, Reynolds said, according to marketwatch.com. He added that it is beneficial for “investors are questioning this in real time before you reach those peak euphoria moments where things get completely detached from reality in fundamentals.”
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
