For short-term traders fueled by the AI-driven stock frenzy, leveraged ETFs are a profitable bet that can offer double-digit returns every week.

However, now, after investing a record amount in a leveraged ETF, a group of retail investors are facing huge losses as Nvidia's market cap drops by about $400 billion.$NVIDIA (NVDA.US)$The daily increase and decrease of the market value is twice as much as Nvidia's.

$GraniteShares 2x Long NVDA Daily ETF (NVDL.US)$Last week, as investors sought to expand the gains of the stock that is considered the world's "most important stock," the fund saw record inflows of $743 million. As it turns out, the timing was not right, and the fund has fallen about 25% since Tuesday's close. By 2024, the fund is still up about 329%.

Dave Lutz, the ETF director of Jones Trading, stated that increasing the Nvidia leveraged position is a high-risk, high-reward move considering that it has long been driven by momentum and popularity, making it difficult to determine when it will ultimately retract. 'Retail traders need to really understand the structure of these products to fully understand the risks involved.'

Last week's ill-timed investment frenzy highlighted the performance risks of investing in such high-intensity ETFs that use derivatives to enhance returns or reverse performance. Reverse and leveraged ETFs are popular among day traders because they are designed for short-term holding. However, their structure means they can bring both huge profits and rapid losses.

With AUM of $3.7 billion, this ETF was launched in December 2022 and attracted approximately $189 million last year, and around $1.8 billion by 2024.

As a representative of the AI boom, Nvidia's stock price has risen 140% this year. This chip maker has now become the second-largest weighting stock in the $700 billion market cap E Fund CSI Technology 50 ETF, accounting for over 20% of the ETF.$The Technology Select Sector SPDR® Fund (XLK.US)$The second largest weighted stock, accounting for over 20% of this technology ETF.

Meanwhile, investors who bet against Nvidia were hit hard this year, losing nearly 90% since the beginning of the year as tracked by the $93 million market cap fund that bets on the daily inverse returns of Nvidia's stock.$GraniteShares 2x Short NVDA Daily ETF (NVD.US)$Trade

Currently, Nvidia's incredible growth is temporarily on hold. The stock entered a correction range on Monday, continuing its steep sell-off. After briefly claiming the title of world's largest stock last week, the stock has fallen 13% for three consecutive trading days, surpassing the 10% correction threshold.

Jane Edmondson, Head of Theme Strategies at TMX VettaFi, stated that 'the time is ripe for a correction in NVDA and its AI peers following a sharp rise.' 'Investors may take some profit off the table as we head into the end of the quarter and adjust portfolio allocations, but the underlying fundamentals remain.'

Edited by Jeffrey