AI Stocks Are Hot, but Smart Investors Are Quickly and Quietly Cutting Their Risk
Billions are still pouring into AI investments, but something is quietly shifting beneath the surface as some of the most aggressive semiconductor bets on Wall Street begin to unravel in a way that could signal a turning point for the…
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Artificial intelligence remains one of the market’s strongest investment themes, driving record spending on chips, data centers, and computing infrastructure. Semiconductor companies have become the picks-and-shovels providers of this digital gold rush, and investors have poured billions into funds designed to amplify those gains. But while the AI story remains intact, another trend is emerging: investors are becoming more cautious about how much risk they are taking.
According to Goldman Sachs data, a major leverage unwind is underway in semiconductor ETFs. Investors are not abandoning AI — they are reducing the amount of borrowed risk they are using to chase the opportunity.
The next phase of the AI trade may depend less on whether the technology succeeds and more on whether investors are positioned to withstand the volatility that comes with it.
Investors Loaded Up On Leveraged AI Bets
Leveraged ETFs became one of Wall Street’s fastest-growing corners as investors searched for ways to multiply their exposure to the semiconductor boom. These funds use derivatives to deliver returns that are typically two or three times the daily performance of an underlying index.
When semiconductor stocks rise, the gains can be attractive. But the same structure works in reverse, turning normal market declines into amplified losses.
The appeal was straightforward. Semiconductor companies have been among the biggest beneficiaries of AI spending, and investors looking for additional upside turned to leveraged ETFs instead of simply buying more shares.
The risk is that leverage works best in a steadily rising market. During sharp declines, daily resets can create losses that compound faster than many investors expect.
A $63 Billion Semiconductor ETF Unwind
Goldman Sachs data shows investors have started reversing those aggressive positions. Assets under management in U.S. leveraged semiconductor ETFs have fallen $63 billion from their June peak, declining to $100 billion. That represents a 39% drawdown and the lowest level since late April.
It is also the largest decline since April 2025, when assets in these funds fell by more than half from their previous August high.
The semiconductor unwind accounts for most of the broader decline across leveraged ETFs:
| Category | AUM Decline |
| Leveraged semiconductor ETFs | -$63 billion |
| All U.S. leveraged ETFs | -$100 billion |
| Semiconductor share of total decline | 63% |
To put a finer point on it, between the final week of March and the June peak, leveraged semiconductor ETF assets nearly tripled as investors rushed into AI-related trades. Now they are pulling back.
Surprisingly, this is not a wholesale rejection of the AI opportunity. Even after the recent decline, leveraged semiconductor ETF assets remain 400% above January 2023 levels. Investors are simply reducing the amount of leverage attached to the trade.
Leverage Can Magnify Losses During Market Stress
The recent pullback highlights why leveraged ETFs require caution. Unlike traditional ETFs that track an index, leveraged ETFs are built for short-term trading. Their daily reset structure means long-term returns can differ sharply from the underlying asset, especially during periods of volatility.
Investors who held these funds during strong AI rallies benefited from amplified gains. But the same mechanism can accelerate losses when momentum reverses. Goldman Sachs has noted that the roughly $200 billion leveraged ETF market could amplify future market declines if investors rush to unwind positions at the same time.
That risk has grown as technology and semiconductor-focused leveraged products have attracted more capital.
Granted, cutting leverage does not mean investors have turned bearish on artificial intelligence. It means many are recognizing that even the strongest investment trends experience setbacks. AI may reshape the economy, but that does not mean every AI-related trade will move higher in a straight line.
Key Takeaway
In short, investors are not walking away from the AI revolution — they are managing their risk. The $63 billion decline in leveraged semiconductor ETF assets shows investors are reducing exposure to the most aggressive part of the AI trade after months of heavy positioning. That is a healthy reset because leverage can turn temporary volatility into permanent losses.
Smart investors should focus on owning high-quality companies with durable advantages rather than depending on borrowed exposure to boost returns. AI’s growth story may last for years, but the investors who benefit most will be those who can stay invested through the inevitable downturns.
Contact [email protected] for any questions or corrections.
After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, and Money Morning. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.
