Record $6.1 Billion Poured Into a 3X Leveraged Chip ETF. Then It Fell 10.8%

Investors pumped a record $6.1 billion into the Direxion Daily Semiconductor Bull 3X ETF last week — and the fund promptly dropped another 10.8%, its third straight weekly decline, according to FactSet data.

The ETF is designed to deliver 300% of the daily swings of a popular semiconductor index. It's now on track to lose more than 43% in October alone. In plain terms, a dollar put into this fund at the September peak is worth roughly 57 cents today.

They tried to buy the dip. The dip kept dipping.

What triggered the rush?

Renewed fears about investment returns on the artificial-intelligence buildout have walloped bullish chip bets this month. The latest hiccup in the AI trade inspired dip-buying, and daily inflows into the leveraged ETF kept coming until Thursday — the very day semiconductor stocks sold off sharply, FactSet data showed.

"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 Friday. "The AI trade has come under some skepticism here."

AI-related swings have grown so powerful this month that they can make or break the S&P 500's performance on a single day. That volatility cuts both ways, and it cuts three times as hard in a 3X fund.

How bad was Thursday?

The Direxion Daily Semiconductor Bull 3X ETF plunged 20.5% on Thursday — its worst day since June 23, per FactSet. The unleveraged iShares Semiconductor ETF slumped a comparatively mild 6.8% the same session.

That gap is the practical lesson. Derivatives juicing daily returns magnify losses exactly when crowded trades unwind. Using these ETFs as speculative tools that stocks will climb can be extremely painful when they tumble instead.

The pain is broad, not just leveraged. The iShares Semiconductor ETF is down a third consecutive week and on track for a 15.9% monthly loss. The S&P 500's information-technology sector booked its third straight week of losses — its longest weekly losing streak since March, according to FactSet.

Why the skepticism now?

Semiconductor shares have soared this year because their chips are essential to AI development, and huge demand has powered earnings growth. But investors are scrutinizing companies' spending on the AI buildout, worried the aggressive pace may not be sustainable.

The valuation backdrop compounds the nerves. The iShares Semiconductor ETF has skyrocketed almost 59% so far this year, even after the recent slide — a reminder of how far prices ran before this pullback.

"At these valuations and after a rally that's been this aggressive, it's healthy that investors are taking a sober second look" at return prospects for the AI theme, Reynolds said. It's good that "investitors are questioning this in real time before you reach those peak euphoria moments where things get completely detached from reality in fundamentals," he said.

What does this change for traders?

For practitioners, the episode is a stress test of two assumptions. First, that record inflows signal conviction — here they signaled capitulation into a falling knife. Second, that leverage amplifies conviction profitably — daily-rebalancing funds like this one punish holders through volatility decay even when the underlying index eventually recovers.

The broader market backdrop adds pressure. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all closed lower Friday. If AI-infrastructure spending skepticism deepens, chip stocks remain the market's most sensitive pressure point — and leveraged funds will keep translating that sensitivity into outsized gains, or outsized losses, for whoever holds them.