The AI hype driving U.S. stocks to record highs has led to a surge in leveraged single stock ETFs. Companies poised to benefit from AI dominate these products, with over half now AI-themed, totaling $17.7 billion invested in the ETF universe. Nvidia’s earnings will test this trend.

Asset managers launched 112 U.S.-listed leveraged single stock ETFs in 2025, compared to 38 in 2024, raising concerns of market overcrowding. Leveraged ETFs, allowing investors to profit from stock price moves, are now tied to AI-focused companies like Nvidia, Tesla, Palantir, and NuScale Power, among others.

Big swings in share prices and leveraged ETFs often occur during earnings announcements. Options traders predict a $260 billion market value swing for Nvidia following its results. Analysts warn that individual stock gambling on AI-themed companies is increasing, making earnings crucial for investors.

Retail investors are primary users of leveraged ETFs, raising concerns about volatility and risk comprehension. In January, Nvidia shares plunged after competition concerns, causing a 34% drop in the GraniteShares 2x ETF. Critics warn of potential losses due to AI gains and leverage risks in these products, despite close adherence to target returns.

Issuers are drawn to leveraged ETFs due to higher fees, averaging 0.96% compared to the industry average of 0.54%. While performance varies, many ETFs closely track their target returns. However, experts caution that the market is oversaturated, predicting a coming “shakeout” as competition intensifies.

Read more at Yahoo Finance: Analysis-Nvidia to set tone for booming AI leveraged ETF market