Investing.com -- Exchange-traded funds (ETFs) with significant exposure to Nvidia (NASDAQ: NVDA ) experienced a sharp drop in prices in the early hours of trading on Monday. This reaction came in response to the news that a Chinese startup, DeepSeek, has launched a new, influential artificial intelligence model.
Prominent figures within the technology market, such as venture capitalist Marc Andreessen, have referred to the rise of DeepSeek's model as a "Sputnik moment" for U.S. AI companies. This comparison suggests a significant shift in the industry, as most U.S. AI companies saw their share prices decline following the news that DeepSeek's downloads have surpassed those of U.S. competitor ChatGPT on Apple (NASDAQ: AAPL )'s online app store.
Nvidia's share price had fallen nearly 17% by midday on Monday, but prices of ETFs offering leveraged exposure to the chipmaker fell even more. The four ETFs providing daily returns of double Nvidia's gain experienced the most significant decline. The GraniteShares 2x Long NVDA Daily ETF plummeted 32.5%. Its leveraged inverse counterpart, which offers investors a gain of double any losses in Nvidia's stock, rose by 31%.
Asset management firms offering these ETFs were not immediately available for comment.
Other leveraged ETFs with substantial Nvidia exposure also made substantial moves. For example, the ProShares Ultra Semiconductors ETF, which aims for a return double that of the Dow Jones U.S. Semiconductors Index and has over 40% of its assets in Nvidia, fell 24.43% by midday on Monday.
Retail traders and speculators typically use these leveraged ETFs, which carry relatively high fees of nearly 1% compared to about 0.4% for a standard actively managed ETF. However, other ETFs, including many owned by institutions and retail investors with a longer investment timeframe, were also affected by the selling.
For instance, the Vanguard Information Technology Index Fund, where Nvidia is the second-largest holding at almost 15% of the portfolio, traded down 4.7% by midday on Monday. The VistaShares Artificial Intelligence Supercycle ETF, which has a smaller Nvidia exposure of only 3% but owns a wide variety of other AI stocks, lost about 7% by midday.
The sudden surge in AI enthusiasm had driven assets in the VistaShares ETF, launched just seven weeks ago, to over $3 billion by Friday. The 2x GraniteShares Nvidia ETF, the largest of the leveraged funds, had $5.3 billion in assets as of Friday, accounting for about half of GraniteShares' total assets, according to data from VettaFi.
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