DeepSeek AI Model Sends Shockwaves Through Nvidia, Slams ETFs

Exchange-traded funds, or ETFs, with leveraged exposure to chipmaker Nvidia NVDA experienced a dramatic Monday thanks to the debut of AI upstart DeepSeek.

The GraniteShares 2x Long NVDA Daily ETF NVDL plunged 34.55% as of writing.
Graniteshares 2x Short NVDA Daily ETF NVD, its leveraged inverse counterpart designed to profit from Nvidia’s losses, soared 34.69% at last check
The ProShares Ultra Semiconductors ETF USD, which holds more than 40% of its assets in Nvidia, dropped by more than 27%
More broadly, the Vanguard Information Technology Index Fund, where Nvidia is the second-largest holding at nearly 15% of the portfolio, shed 4.7%.
The VistaShares Artificial Intelligence Supercycle ETF AIS, which has only 3% of its assets in Nvidia but holds other AI stocks, lost 8.43%.

These ETFs offer the potential for amplified profits at the cost of higher-than-usual fees of around 1% and greater volatility.

What Triggered The Selloff?

DeepSeek is the culprit. This Hangzhou, China-based AI startup launched a new model that poses a challenge to U.S. competitors, including Nvidia's core business.

DeepSeek's open-source AI model has already surpassed ChatGPT in downloads on Apple's app store, leaving the AI market in awe. Industry experts like venture capitalist Marc Andreessen called this moment a “Sputnik moment” for U.S. AI companies as this could be a ground-breaker in the AI space, reported Reuters.

The market's reaction was swift. Nvidia’s stock, a major player in the AI space, dropped nearly 17.65%, taking along semiconductor stocks like Broadcom AVGO and Marvell Technology MRVL in the ride south.

The iShares Semiconductor ETF SOXX, which tracks semiconductor stocks, also plummeted by 8.39%, experiencing its worst day since the pandemic-led selloff in March 2020.

As fear spread, investors flocked to safe-haven assets like U.S. Treasuries, leading to yields on the 10-year note dipping to a one-month low.

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