Leveraged retail investors frustrated by tumbling US chip shares

gettyimagesbank

Retail investors holding leveraged positions in shares of major U.S. semiconductor companies are facing significant losses. These losses have been exacerbated by a wave of global brokerage firms lowering their growth forecasts for the coming quarters, market analysts reported on Friday.

Underpinning the downward revision is a market correction in response to months of overestimation in the potential revenue generated by the automotive artificial intelligence (AI) sectors.

Most at issue are shares of AMD and Nvidia, two American IT giants, which fluctuated wildly over the past month. AMD, in particular, tanked 9 percent on May 1 (local time), extending the month-long drop to 20 percent. Nvidia shares fell 4 percent.

According to the Korea Exchange, investors of Direxion Daily Semiconductor Bull and Bear 3X have registered over 25 percent in losses over the past month.

The financial product can generate three times the performance — or inverse performance — of the New York Stock Exchange Semiconductor Index.

The performance of the derivative is tied to the PHLX Semiconductor Index — a Philadelphia Stock Exchange index composed of the 30 largest U.S. semiconductor firms.

Koreans net purchased $101 million (139 billion won) of the high-risk, high-return leveraged product over the past month. PHLX index fell 7 percent over the same period.

AMD shares ended at $144.27, down 8.91 percent on May 1.

The primary reason for the decline was the weaker-than-expected sales projections.

Leading financial market data providers had estimated that the annual sales would spike to as high as $10 billion.

However, the firm said during the conference call the previous day that the figure is projected to be limited to $4 billion.

Also at play was second-quarter earnings falling short of market consensus.

The firm said data center business sales in the April-June period will register double-digit growth from three months earlier, but games sales will plunge 30 percent.

Citigroup lowered AMD's target price to $176, down from $192, a step followed by its global peers making underweight position recommendations, expecting as much as a 10 percent reduction in share valuation.