AI ETFs Face Significant Declines Amid Market Correction
As the tech sector cools down, AI ETFs containing major chip stocks experience sharp downturns.
The recent market trends have sent shockwaves through several sectors, particularly affecting artificial intelligence (AI) exchange-traded funds (ETFs). After a rally fueled by the change in Congress, many investors are now reassessing their positions as the tech sector takes a hit.
Market Correction Status
The Nasdaq 100 has seen a decline of over 10% since its peak closing high in October, officially entering correction territory. This drop indicates a broad pullback in technology stocks, raising concerns among investors who had previously flocked to high-growth sectors.
Struggles for AI-Heavy ETFs
On Thursday, ETFs with heavy investments in popular semiconductor companies experienced substantial losses. Stocks like SanDisk, Western Digital, Advanced Micro Devices, Seagate Technology, and Micron Technology were amongst the hardest hit on the S&P 500 index.
In addition to chip manufacturers, ETFs focusing on AI infrastructure and data centers—specifically Vertiv and Quanta Services—also reported significant declines. Many of these stocks fell into double-digit losses, marking a downturn in the AI sector for the second consecutive day.
Specific ETF Performance
The Roundhill Memory ETF (ticker: DRAM), which is heavily invested in memory-related companies, saw its value plummet by around 15%. This puts the ETF back to a price level not seen since it began trading earlier this year. Other established funds, including the iShares Semiconductor ETF (SOXX) and the WisdomTree AI and Innovation Fund (WTAI), also faced declines of about 10% and almost erasing their 2026 gains, respectively.
Newer options like the Roundhill Neocloud ETF (NCLD), launched in August, have also seen its value dip below the initial trading price. Leveraged ETFs, which amplify returns based on certain stocks or indexes, are not spared either. The Direxion Daily Semiconductor Bull 3X ETF (SOXL) experienced a staggering decline of over 30% during the day.
Investors' Sentiments Shift
Some analysts attribute this market shift to the recent election results, speculating a possible slowdown in AI spending that could impact growth. However, the sentiments could also be influenced by evolving investor reactions to significant tech earnings reported in the third quarter. Richard Clode from Janus Henderson, a tech-specific portfolio manager, described the broad selloff in AI stocks as a form of a 'buyer's strike' during an interview with CNBC. He elaborated that various long-short funds were already under pressure before the election results emerged, leading to significant forced selling.
This market turbulence raises critical questions about the sustainability of AI investments and has left many investors searching for clarity in an uncertain landscape.
