India, July 29 -- Semiconductor stocks have been under heavy pressure in recent weeks as investors rushed to sell AI-related stocks. But those who used leverage-through borrowed money or leveraged ETFs-have suffered much steeper losses, turning a chip sell-off into a broader market rout.

The iShares Semiconductor ETF (SOXX), which tracks chip stocks, has dropped about 25% from its June 22 peak. The Direxion Daily Semiconductor Bull 3X Shares (SOXL), a leveraged semiconductor ETF, has plunged nearly 63% over the same period, according to Yahoo Finance.

Since SOXL is a 3x leveraged ETF, many investors assumed it should simply lose three times whatever SOXX lost. SOXL did not malfunction. The ETF is designed to deliver three times the DAIL...