Plunged 25%! NVIDIA Leveraged ETF Suffers Heavy Losses
The leveraged ETF NVDL, which tracks twice the daily return of NVIDIA, attracted over $700 million in inflows last week. However, the timing of this choice was quite unfortunate as the ETF has plummeted by about 25% since last Tuesday's close. Analysts believe that NVIDIA's fundamentals remain strong, and the decline in stock price is due to some investors opting to take profits at the end of the quarter
After briefly becoming the world's largest company by market value last week, NVIDIA's astonishing rise is currently pausing.
Over the past three trading days, NVIDIA has cumulatively fallen by 13%, with a market value evaporating by about $400 billion. This fluctuation not only affects NVIDIA shareholders, but also brings a huge impact to retail investors who invest in leveraged ETFs.
Last week, the ETF GraniteShares 2x Long NVDA Daily ETF (NVDL), which doubles the long position in NVIDIA, attracted a record $743 million in fund inflows, drawing in a large number of investors hoping to amplify the returns of NVIDIA's common stock.
However, the timing of this choice is quite unfortunate, as since last Tuesday's close, the ETF has plummeted by about 25%. Nevertheless, NVDL still maintains a staggering 347% gain year-to-date.
Dave Lutz, the ETF director at JonesTrading, warned:
Investing heavily in NVIDIA leveraged ETFs is a high-risk, high-reward move... Retail investors need to fully understand the structure of such products to comprehensively grasp the risks involved.
These high-leverage ETFs use derivatives to amplify returns or inverse performance, which may bring substantial profits but also entail significant loss risks.
Since its launch in December 2022, NVDL has attracted approximately $3.7 billion in assets. In 2024 alone, there have been about $1.8 billion in fund inflows, compared to only $189 million for the entire year of 2023.
As a core target of the artificial intelligence frenzy and "the most important stock on earth," NVIDIA has risen by about 140% so far this year.
Investors shorting NVIDIA have suffered heavy losses this year. The GraniteShares 2x Short NVDA Daily ETF (NVD), which tracks the daily inverse returns of NVIDIA stock, has fallen by nearly 90% this year.
Although NVIDIA is currently in a temporary adjustment phase, some market analysts still have a positive outlook on the stock.
Jane Edmondson, Director of TMX VettaFi Theme Strategies, told the media:
After experiencing significant gains, NVIDIA and its AI peers indeed require adjustments. Investors may take profits at the end of the quarter and readjust their portfolio allocations. However, the fundamentals supporting these companies still exist