Buying on dips has always been a winning strategy during the recent surge in technology stocks driven by artificial intelligence. Now, this approach has produced the opposite effect - it's particularly painful for investors who use larger bets to amplify returns.

A group of leveraged ETFs centered on technology products suffered double-digit losses, with stocks related to artificial intelligence fever hit hard by the previous market crash. These ETFs aim to increase the daily volatility of the underlying securities by two or three times.$NASDAQ 100 Index (.NDX.US)$On Wednesday, it dropped 3.7%, the largest single-day drop since October 2022, following last week's downturn.

Providing three times the daily volatility of the New York Semiconductor Exchange Index,$Direxion Daily Semiconductor Bull 3x Shares ETF (SOXL.US)$It fell 15% on Wednesday, continuing a 37% drop over the past 14 days. Last week alone, the fund attracted a record $1.5 billion in funds. The $23 billion market cap$ProShares UltraPro QQQ ETF (TQQQ.US)$and $4 billion$ProShares UltraPro S&P500 ETF (UPRO.US)$fell nearly 7% and 11%, while last week's cumulative fund inflows were about $0.65 billion. The combined inflow of the three ETFs exceeded $2 billion.

Before the large drop in technology stocks on Wednesday,$Alphabet-A (GOOGL.US)$And.$Tesla (TSLA.US)$disappointing earnings reports were raising doubts about when investments in artificial intelligence would pay off, accelerating the shift from winners in technology stocks to smaller market cap stocks.

Jane Edmondson, director of TMX VettaFi theme strategies, said: "Most investors are using these leveraged products to double their investment ideas." "This approach amplifies returns when fundamentals rise, but also brings greater pain when fundamentals fall.

These seemingly ill-timed trades highlight the increased risk of investing in these high-intensity ETFs. ETFs use derivatives to boost returns. Reverse and leveraged ETFs are popular among day traders because they are designed for short-term holding. But their structure means that they can bring both huge losses and huge gains.

So far, leveraged long and short single stock funds have accumulated about $9 billion in fund inflows in 2024, surpassing last year's $10.2 billion. These four funds are still up sharply since the beginning of the year, with gains of over 30%,$GraniteShares 2x Long NVDA Daily ETF (NVDL.US)$and the fund's gains have exceeded 280%. The fund has become one of the largest traded ETFs with daily trading volume exceeding $1 billion.

Mohit Bajaj, etf director at WallachBeth Capital, said: "Obviously, when their underlying assets fall sharply, these ETFs also fall with them." "But their performance has been very good this year and is still performing well so far."

Edited by Jeffrey