Single-stock ETFs betting heavily on Nvidia’s blistering rally plunged overnight, tracking losses in the chip darling’s shares, calling into question the reliability of the asset class as an investment vehicle.
The GraniteShares 2x Long NVDA Daily ETF (NVDL) fell over 33.78% overnight. The Direxion Daily NVDA Bull 2x Shares ETF (NVDU) and T-Rex 2X Long Nvidia Daily Target ETF (NVDX) plunged 33.8% and 33.77% respectively. All three funds reported their largest loss in a single day, according to data from FactSet.
Conversely, funds betting against Nvidia like the GraniteShares 2x Short NVDA Daily ETF (NVDL) rose more than 33%.
“This sell-off has been a difficult lesson for investors who have seen Nvidia as invincible and have taken aggressive bets on its growth without understanding the risks of single stock ETFs,” said Roxanna Islam, head of sector and industry research at TMX VettaFi.
The funds were designed to deliver twice the performance of Nvidia on a single-day basis.
It could be a matter of time before some of them implode depending on the intensity of market movements of individual stocks.
The GraniteShares 2x Long NVDA Daily ETF (NVDL), which boasts the largest assets under management out of the three, saw AUM decline by $2.4 billion from its peak last November to $4.3 billion as of Monday, according to data provided by by Global X ETFS. The AUMs of T-Rex 2X Long Nvidia Daily Target ETF (NVDX) and Direxion Daily NVDA Bull 2x Shares ETF (NVDU) are currently hovering around $419 million and $497 million, respectively.
“While these ETFs can magnify gains, they can also magnify losses and may not be appropriate for investors without a high risk tolerance,” Islam told CNBC.
Since their approval in 2022, single-stock ETFs have seen an explosion in popularity, with over 60 products available in the U.S. worth $18 billion in assets, data from Global X ETFs showed. Single-stock ETFs strive to deliver amplified returns compared to the underlying asset.
“In other words, they’re more volatile,” said Morningstar.
Nvidia stocks in the past one year
“It could be a matter of time before some of them implode depending on the intensity of market movements of individual stocks,” said Marc Jocum, product and investment strategist at Global X ETFs.
Nvidia lost almost $600 billion in market cap on Monday, the biggest drop for any company on a single day in the U.S. The sell-off was triggered by fears of Chinese AI lab DeepSeek intensifying AI competition and calling into question America’s dominance in the sector.
Last week, DeepSeek launched R1, an open-source reasoning model that was claimed to have taken only two months and less than $6 million to build. It was reported that DeepSeek’s reasoning model outperformed Open AI’s latest o1 model in several third-party tests.
Single-stock ETFs come with a huge risk, however, they can be useful trading tools when employed correctly, in particular for speculators, market watchers told CNBC.
These ETFs are best suited for traders who want to take advantage of volatility to express a strong bullish or bearish view over a single day, said Islam.
“While they’re powerful tools for tactical day traders, they may not suit buy-and-hold long-term investors,” warned Jocum.