This year’s bull market in US stock markets, fuelled in large part by enthusiasm around artificial intelligence, has led to an explosion in the market for niche financial products. We are talking about leveraged, single exchange-traded funds (ETFs), which allow investors to multiply their bets on the price fluctuations of specific companies.
Nvidia ‘s upcoming quarterly results will be a key test for this heated segment.
Analysis of industry data shows that companies perceived as beneficiaries of the AI revolution dominate the market for US leveraged and inverse ETFs.
Investors are looking for aggressive ways to increase their returns from the AI trend, and asset managers are rushing to meet this demand.
The figures speak for themselves. So far in 2025, 112 such funds have been launched in the US, compared to just 38 in the whole of 2024.
Currently, more than half of all 190 US-listed single leveraged ETFs are thematically linked to artificial intelligence. They bring together assets worth $17.7 billion of the $23.7 billion invested in this market segment as a whole.
Importantly, the ‘AI theme’ here is interpreted broadly. These funds offer exposure not only to chipmakers such as Nvidia, but also to companies such as Tesla (developing autonomous vehicles), Palantir (data analytics) or even energy companies to power the growing number of data centres.
An example of success is the GraniteShares 2x Long NVDA Daily ETF, which has accumulated assets of $4.56bn since its debut in December 2022.
Leveraged ETFs use derivatives, such as swaps and options, to achieve a multiple of the daily performance of the underlying stock – for example, double up or double down. They are designed for short-term speculation and their volatility is highest during earnings release periods.
This was borne out by the recent example of MongoDB, whose shares rose by more than 23% following the publication of the report, which translated into a 46% jump in its affiliated 2x Long fund.
However, the same mechanics that tempt potentially high returns carry huge risks. Critics warn that retail investors who dominate this market may not fully understand how rapidly these products can lose value.
When Nvidia’s shares fell 17% at the end of January following news of potential competition from China, the aforementioned GraniteShares 2x fund lost nearly 34%.
Market analysts point to two main risks. First, the market is becoming dangerously crowded, which could lead to consolidation and the closure of some funds. Secondly, the combination of the risks associated with already high valuations of AI companies with the additional risk of leverage creates a mix with increased loss potential. Although issuers ensure that funds perform as intended, it is the extreme volatility of the underlying stocks that poses a fundamental risk to investors’ portfolios.
