Tech-Linked ETFs Suffer Outflows In March As AI 'Mini Bubble' Pops On Tariff Panic

U.S. technology-linked ETFs endured a wave of selling pressure in March 2025 as investor enthusiasm for the artificial intelligence boom cooled and macroeconomic uncertainties—from tariff risks to geopolitical tensions—dampened appetite for high-growth names.

The Invesco QQQ Trust QQQ, which tracks the tech-heavy Nasdaq 100 Index, plunged 9.1% in March, its worst monthly performance since December 2022.

Unlike previous corrections, where dip-buying quickly followed. This time, investors pulled back. QQQ posted $1.4 billion in outflows, snapping a four-month streak of inflows and signaling rising caution.

The Technology Select Sector SPDR Fund XLK slumped 10%, marking its steepest one-month drop since September 2022. The ETF also bled $770 million in March, bringing combined outflows over the past two months to more than $1.1 billion.

Semiconductor-related ETFs—previously the poster children of the AI revolution—were particularly hard hit.

The iShares Semiconductor ETF SOXX suffered $200 million in outflows, marking the fourth straight month of capital leakage.

The VanEck Semiconductor ETF SMH and SPDR S&P Semiconductor ETF XSD recorded outflows of $210 million and $40 million, respectively.

These ETFs have entered a bear market after falling more than 20% from their late 2024 peak.

Valuation Reset: The AI Trade Comes Back to Earth

According to Ed Yardeni, president at Yardeni Research, the semiconductor sector has now "mostly erased its valuation premium" over the broader market—an edge it had built up since the debut of ChatGPT in late 2022.

“We’ve opined that DeepSeek would be a net positive for AI demand, as cheaper training and model proliferation helps non-tech companies adopt AI and boost productivity. Perhaps there was a mini-bubble built up on AI euphoria,” Yardeni said in a recent note.

Yet, he also expressed room for optimism.

“Since the Magnficent-7 stocks’ long-term earnings expectations and valuation multiples already have realigned closer to historical averages without a bear market or recession, we think further downside for the AI trade is limited,” Yardeni added.

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