{"slug": "leverage-in-the-ai-trade-is-even-scarier-than-the-debt-used-for-its-build-out", "title": "Leverage in the AI trade is even scarier than the debt used for its build-out", "summary": "A sharp selloff in South Korean stocks, driven by leveraged bets on AI-related semiconductor stocks, cascaded into US tech markets on Tuesday, highlighting that leverage in AI trading poses a greater near-term risk than the debt used for AI infrastructure build-out. Margin loans and leveraged ETFs in Korea have surged, with single-stock leveraged ETFs for Samsung and SK Hynix amassing over $10 billion in assets within a month, amplifying market volatility.", "body_md": "# Leverage in the AI trade is even scarier than the debt used for its build-out\n\nUS stocks get the hiccups, Korean markets throw up, US stocks catch a fever.\n\nThe sharp selloff in South Korean stocks — with massive follow-through across US tech stocks on Tuesday — is a useful reminder that the leverage involved in the AI <trade> can be a bigger near-term risk for markets than the leverage involved in the AI build-out.\n\nSouth Korea’s Kospi is dominated by SK Hynix and Samsung, two of the three members of the high-bandwidth memory triumvirate along with Micron (which reports earnings on Wednesday).\n\nAn eagerness to embrace risk in a bid to get rich quick is not a uniquely American phenomenon. South Koreans love leverage.\n\nData from the Korea Financial Investment Association shows that margin loans have been going straight up and to the right:\n\nTotal assets in 11 Korean-listed ETFs that boast single-stock leveraged exposure to Samsung or SK Hynix in their fund names are up from under $3 billion since their launches less than a month ago, touching north of $10 billion heading into the most recent session. You’d need to win Squid Game about 340 times to amass the amount of assets these funds have been able to boast in such a short period.\n\nSo, to a certain extent, Korea’s world-beating rally is fueled by using borrowed funds to make leveraged bets. Leverage squared!\n\n(Yeah, there’s a lot of talk about foreign selling of South Korean stocks today too, but that’s nothing new — exchange data shows consistent divestments this year.)\n\nIt goes without saying that the above chart understates the leverage. The twists and turns of leveraged ETFs linked to the Kospi as a whole are heavily skewed by the performance of these heavily-weighted members.\n\nHigh-flying AI stocks like [Sandisk](https://robinhood.com/us/en/stocks/SNDK/?source=sherwood), [Credo Technology Group](https://robinhood.com/us/en/stocks/CRDO/?source=sherwood), [Lam Research](https://robinhood.com/us/en/stocks/LRCX/?source=sherwood), [AXT](https://robinhood.com/us/en/stocks/AXTI/?source=sherwood), [Micron](https://robinhood.com/us/en/stocks/MU/?source=sherwood), [Corning](https://robinhood.com/us/en/stocks/GLW/?source=sherwood), [Applied Optoelectronics](https://robinhood.com/us/en/stocks/AAOI/?source=sherwood), [Western Digital](https://robinhood.com/us/en/stocks/WDC/?source=sherwood), [Marvell Technology](https://robinhood.com/us/en/stocks/MRVL/?source=sherwood), [Arm Holdings](https://robinhood.com/us/en/stocks/ARM/?source=sherwood), [Coherent](https://robinhood.com/us/en/stocks/COHR/?source=sherwood), [ASML](https://robinhood.com/us/en/stocks/ASML/?source=sherwood), [Arista Networks](https://robinhood.com/us/en/stocks/ANET/?source=sherwood), [Astera Labs](https://robinhood.com/us/en/stocks/ALAB/?source=sherwood), and [Seagate Technology Holdings](https://robinhood.com/us/en/stocks/STX/?source=sherwood) are all seeing heavy selling pressure in early trading.\n\nWhat caused this rout? Who knows.\n\nHigh leverage means you don’t (or shouldn’t) have to think too hard about why massive moves happen, particularly when nobody was asking too many pointed questions about why these same stocks were seemingly going up 5% per day in perpetuity. Play with matches and you get burned, or, worst case, start a fire.\n\nThat being said, Monday’s selloff in the Mag 7 heavyweights may have set the stage for some pain in Korea that turned more violent due to the leverage in the trade (sort of a chicken-egg conundrum, given how the Kospi’s drubbing is hitting the Nasdaq this morning).\n\nMaybe it’s taking some chips off the table in light of the group’s hot run just before Micron’s earnings, which could be a catalyst for profit-taking.\n\nIn addition, a major leveraged ETF tied to SK Hynix recently changed how it gets its exposure, leaning more into options from swaps. That’s certainly something that introduces the potential for more tracking error, and hints at the difficulty in finding counterparties willing to take the other side of the trade at a reasonable cost.\n\nJust yesterday, Dean Curnutt, founder of the Alpha Exchange and Macro Risk Advisors CEO, [flagged](https://x.com/Alpha_Ex_LLC/status/2069019141567053957) this ETF’s change as “not something that will work out well,” adding that the product was “the center of the storm for an unwind in the semis/chips component of the AI trade that is approaching.”\n\nPretty darn good timing, that.", "url": "https://wpnews.pro/news/leverage-in-the-ai-trade-is-even-scarier-than-the-debt-used-for-its-build-out", "canonical_source": "https://sherwood.news/markets/south-koreas-memory-stock-leverage-slump-us-stock-tech-selloff-ai-trade/", "published_at": "2026-06-23 13:59:59+00:00", "updated_at": "2026-06-24 00:45:40.277842+00:00", "lang": "en", "topics": ["ai-chips", "ai-startups", "ai-policy", "artificial-intelligence", "ai-safety"], "entities": ["SK Hynix", "Samsung", "Micron", "Kospi", "Korea Financial Investment Association", "Sandisk", "Credo Technology Group", "Lam Research"], "alternates": {"html": "https://wpnews.pro/news/leverage-in-the-ai-trade-is-even-scarier-than-the-debt-used-for-its-build-out", "markdown": "https://wpnews.pro/news/leverage-in-the-ai-trade-is-even-scarier-than-the-debt-used-for-its-build-out.md", "text": "https://wpnews.pro/news/leverage-in-the-ai-trade-is-even-scarier-than-the-debt-used-for-its-build-out.txt", "jsonld": "https://wpnews.pro/news/leverage-in-the-ai-trade-is-even-scarier-than-the-debt-used-for-its-build-out.jsonld"}}