U.S. retail investors' "bottom-fishing" in chip leveraged ETFs suffers setback, SOXL plunges 20.5% in a single day.

October 24 - FactSet data shows that the Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL) attracted $6.1 billion in inflows last week, setting a single-week historical record. Investors attempted to bet on a rebound in chip stocks, but SOXL still fell 10.8% this week, marking its third consecutive weekly decline, with a cumulative drop of over 43% since October.

Inflows continued through Thursday, but SOXL fell 20.5% that day, the largest single-day decline since June 23. In comparison, the non-leveraged iShares Semiconductor ETF (SOXX) fell 6.8% that day and has dropped about 15.9% since October. SOXL uses derivatives to target 3 times the daily price movement of the semiconductor index, amplifying both gains and loss risks.

The semiconductor sector is under pressure, mainly due to market doubts about the return on AI infrastructure investment. Investors are reassessing whether the aggressive spending of tech giants can continue to deliver on profit expectations. Previously, AI chip demand drove semiconductor stocks higher, with SOXX's year-to-date gain once approaching 59%, but recent selling has put its rally to the test.

Mike Reynolds, Vice President of Investment Strategy at Glenmede, said semiconductors are highly sensitive to AI infrastructure buildout, and the AI trade is currently facing some degree of scrutiny. He believes that after strong stock price gains and elevated valuations, investors re-examining the potential returns of the AI theme is healthy market behavior.

Meanwhile, the three major U.S. stock indexes all closed lower on Friday, and the S&P 500 Information Technology sector fell for a third consecutive week, the longest losing streak since March.