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By Suzanne McGee
(Reuters) -Prices of exchange-traded funds with outsize exposure to Nvidia plunged on Monday in reaction to news that a Chinese startup has launched a powerful new artificial intelligence model.
Technology market insiders like venture capitalist Marc Andreessen have labeled the emergence of year-old DeepSeek’s model a “Sputnik moment” for U.S. AI companies, most of whose share prices slid on news that downloads of DeepSeek already have overtaken those of U.S. rival ChatGPT on Apple’s online app store.
While Nvidia’s share price traded about 17.3% lower by midafternoon on Monday, prices of exchange-traded funds that offer leveraged exposure to the chipmaker plunged still further.
The four ETFs that offer daily returns of double the gain in Nvidia were hit with the biggest decline, with the GraniteShares 2x Long NVDA Daily ETF nosediving 34.5%. Its leveraged inverse counterpart, which offers investors a gain of double any losses in Nvidia’s stock, soared nearly 34%.
“These movements were to be expected, given what we saw happen with Nvidia,” said Will Rhind, founder and CEO of GraniteShares. “We won’t begin to get a sense of how much we’re seeing in outflows or inflows until after the market is closed, though.”
Other leveraged ETFs with large Nvidia exposure made equally dramatic moves. The ProShares Ultra Semiconductors ETF, which targets a return double that of the Dow Jones U.S. Semiconductors Index and has more than 40% of its assets in Nvidia, tumbled 24.43% by midday on Monday. Those ETF providers could not immediately be reached for comment.
“Volatility is what the gamblers in single-stock ETFs are looking for,” said Bryan Armour, ETF analyst at Morningstar. “Those that have a bad experience now might shy away in future, but I’m sure they’ll be replaced by others.”
The leveraged ETFs, which carry relatively high fees of close to 1% compared with about 0.4% for a typical actively managed ETF, are the domain of retail traders and speculators, Armour added.
But other ETFs were caught up in the selling, including many owned by institutions and retail investors with a longer investment time horizon.
For instance, the Vanguard Information Technology Index Fund traded down 5.25% by midafternoon on Monday. Nvidia is the fund’s second-largest holding, at nearly 15% of the portfolio.
The VistaShares Artificial Intelligence Supercycle ETF lost about 10% by midafternoon. It has a smaller exposure to Nvidia – only 3% – but owns a wide variety of other AI stocks.