U.S. investors are borrowing record sums to place ever-larger bets on companies tied to the buildout of artificial intelligence. Margin debt stands at $1.4 trillion, and this exposure has been compounded by growth in high-risk, leveraged exchange-traded funds (ETFs) that amplify the moves of the underlying stocks.
Those forces intensified swings in South Korea’s market, which spilled over into U.S. trading last week. Analysts speaking to The Wall Street Journal warned that while leveraged ETFs can supercharge gains in a bull market, “what goes up fast can crash down even faster.”
Last week’s selloff in technology shares suggests investor worry is rising. At the same time, the South Korean government announced a $1 trillion AI investment fund, signaling that Seoul—like many other countries and major tech firms—expects the AI chip boom to continue.
Analysts say the combination of large margin borrowing and proliferating leveraged ETFs increases the market’s vulnerability because it magnifies price moves in both directions. Rapid rises can therefore be followed by faster and deeper declines when sentiment turns.
Why this matters
- $1.4 trillion of margin debt implies larger market exposure to price movements.
- Leveraged ETFs amplify directional moves, which can accelerate losses during swift selloffs.
- Volatility that begins in a regional market, as seen in South Korea, can quickly affect U.S. trading.
Market participants and observers are watching developments closely as substantial public and private investments into AI continue to draw capital into AI-linked assets.
(Reporting: Tom Chivers)
