Immediately reduce your exposure to high-flying AI and momentum stocks like Nvidia that rely heavily on debt and financial leverage.

Be cautious of current corporate profit figures in the technology sector, as they are partially amplified by accounting treatments that spread capital expenditures over many years rather than expensing them immediately.

Completely avoid single-stock leveraged exchange-traded products, as their structural leverage can completely wipe out your capital during sudden market downturns.

Watch out for similar systemic risks brewing in the United States, where assets under management in leveraged ETFs have grown significantly and remain heavily concentrated in single-stock products.

Protect your portfolio by exercising strict risk management and avoiding leveraged momentum trades that are vulnerable to forced liquidations and margin calls.

Artificial Intelligence Sector and Infrastructure (NVIDIA)

• The AI boom is heavily propped up by debt, leverage, and specific accounting methods where capital expenditures are capitalized and depreciated over 5 to 10 years rather than expensed immediately.
• Companies receiving this capital—such as Nvidia, Caterpillar, and utilities—recognize revenues and profits immediately, creating a mismatch that has artificially inflated S&P profits over the last two years.
• Institutional and retail investors have heavily leveraged themselves into AI-related momentum trades, creating extreme volatility when margin calls trigger forced liquidations.

Takeaways

• Exercise caution with high-flying AI stocks and momentum trades that rely on debt and financial leverage.
• Recognize that current high corporate profits in the tech and AI sectors may be partially amplified by unique accounting treatments of capital expenditures rather than pure organic growth.

Samsung Electronics and SK Hynix

• South Korea's stock market plunged 44% from its June highs, wiping out $2 trillion in value due to the collapse of single-stock leveraged ETFs tracking Samsung and SK Hynix.
• Approximately 70% of retail investors in South Korea holding these two names are currently in the red, and roughly 3.4% of South Korea's adult population received margin calls.
• Due to these systemic retail losses, South Korea's regulators are halting new listings of single-stock leveraged ETFs.

Takeaways

• Avoid single-stock leveraged exchange-traded products, as leverage removes your margin for being wrong and can completely wipe out capital during sudden market downturns.
• Be aware that similar risks are growing in the United States, where leveraged ETF assets under management have grown significantly, heavily concentrated in single-stock products.