On January 27, prices of exchange-traded funds heavily tied to Nvidia dropped significantly in response to recent developments.
Tech industry figures like venture capitalist Marc Andreessen have lauded DeepSeek's innovative model as a game-changer for U.S. AI companies. The news of DeepSeek outperforming ChatGPT in Apple's app store led to a downturn in the share prices of many U.S. AI firms.
Nvidia's stock fell around 17.3% by midday, causing even greater plunges in leveraged ETFs linked to the chipmaker. For instance, the GraniteShares 2x Long NVDA Daily ETF plummeted by 34.5%.
The market volatility sparked by this news caught the attention of experts like ETF analyst Bryan Armour. He noted that leveraged ETFs, appealing to risk-takers, incurred substantial losses as a result.
On the other hand, more stable ETFs, including those held by institutional and long-term investors, were also affected by the sell-off. The Vanguard Information Technology Index Fund, for example, saw a 5.25% decrease, given Nvidia's significant role in its portfolio.
The VistaShares Artificial Intelligence Supercycle ETF experienced a 10% dip, despite having only a 3% exposure to Nvidia. Adam Patti, VistaShares' CEO, highlighted the competitiveness and evolution within the AI sector as natural processes that the market will navigate over time.
The AI sector's growing potential attracted significant funds into AI-themed ETFs, such as VistaShares and GraniteShares. Evan Feagans, a fund manager at TCW Artificial Intelligence ETF, emphasized the temporary nature of market reactions to such news, foreseeing opportunities emerging for investors.
During the past week, investors aggressively shed holdings in leveraged technology ETFs, as reported by research firm EPFR. The increased selloff resulted in substantial outflows, particularly from funds with exposure to Nvidia.
Detailed data on fund outflows from these AI-related ETFs post-Monday will only be accessible on Tuesday.