Leveraged ETF assets double in two months as investors press AI bet

• U.S. leveraged equity ETF assets jumped from $39 billion to $84 billion, while South Korea and Taiwan leveraged ETFs surged from $17 billion to $43.1 billion over the two-month period
• The rally comes as major tech companies plan to spend over $1 trillion on AI infrastructure by 2027, though earnings and cash flow are currently concentrated in only a handful of chip and memory companies
• Analysts warn the 'parabolic price action' may be unsustainable, with leveraged ETFs using derivatives to provide 2-3x daily returns creating risk of aggressive reversals if the AI trade experiences a pullback

Summary: Leveraged ETF Assets Double Amid AI Investment Surge

Key Development:

Assets in leveraged ETFs nearly doubled in two months, driven by investor demand for maximum exposure to the AI trend. Total net assets for leveraged U.S. equity ETFs surged to $84 billion by end of May from $39 billion in April. Leveraged ETFs focused on South Korea and Taiwan jumped to $43.1 billion from $17 billion during the same period.

Data Source:

Goldman Sachs analyzed EPFR data tracking 573 leveraged U.S. equity ETFs, 52 South Korean ETFs, and 11 Taiwan ETFs.

Market Context:

The surge reflects growing appetite for AI-driven stocks, particularly in Asian markets housing critical AI ecosystem companies. South Korea and Taiwan have recently surpassed several Western countries in market performance. TSMC dominates Taiwan's benchmark index, while major memory/chip suppliers represent significant portions of Korea's Kospi index.

Investment Backdrop:

Major tech companies including Microsoft, Amazon, Meta, and Google are expected to invest over $1 trillion in AI infrastructure capex this year, with Wall Street projecting AI spending to exceed $1 trillion by 2027.

Risks and Concerns:

Analysts warn the rally shows signs of unsustainability. Adam Crisafulli of Vital Knowledge notes that while AI drives revenue growth across many firms, only a handful—primarily memory and chip companies—are generating actual earnings and cash flow. The parabolic price action, with major stocks doubling within days, typically cannot persist indefinitely.

The concentration in leveraged instruments poses reversal risk, as these funds using derivatives to deliver 2-3x daily returns could amplify losses during any AI trade pullback.