AI chips are undoubtedly the hottest trading theme in the current market, but their crowding is also raising increasing alarm. Data shows that funds from retail and institutional investors are pouring into the semiconductor sector at an unprecedented rate, making it one of the most crowded market trades so far in 2026.
1. Record Retail Fund Inflows, Frenzied Sentiment Spreads Since the beginning of 2025, retail investors have accumulated net purchases of over $3.2 billion into semiconductor ETFs. In 2026 alone, the intensity of fund inflows has already doubled compared to 2025. As of mid-May, taking the VanEck Semiconductor ETF as an example, the fund has risen 41.2% since early April, with a year-to-date gain of 51.7%. Its asset size has swelled to approximately $63 billion, attracting about $2.47 billion in net inflows.
Accompanying the fund influx is a sharp rise in leveraged trading activity. The combined average daily trading volume for the Direxion Daily Semiconductor Bull 3X ETF and its inverse product among retail investors has surged to around 330 million shares, hitting a 16-month high. Among these, retail buying of the bullish leveraged ETF has reached the 99th percentile of the past five years, indicating that while the market is frantically chasing gains, aggressive risk hedging is also taking place.
2. Institutions Issue Warnings, Young "Prodigy" Makes Major Short Bets Signals of market overheating have also alerted professional investors. A fund managed by 24-year-old Wall Street newcomer and former OpenAI researcher Leopold Aschenbrenner established a massive put option position with a notional value of up to $7.46 billion in chip stocks during the first quarter. The short targets include multiple core names such as NVIDIA, Broadcom, Micron Technology, and TSMC.
Aschenbrenner judges that the bottleneck for AI industry development has shifted from GPU chip constraints to power supply, physical space, and computing power limitations. Based on this "post-GPU era" logic, while shorting crowded chip designers, he has significantly increased holdings in AI infrastructure-related companies like power and data centers. His largest holding, Bloom Energy, has risen nearly 200% year-to-date.
3. Market Divergence Intensifies, but AI Narrative Remains Intact Wall Street holds clearly divergent views on the subsequent trajectory of chip stocks. On one hand, optimists believe that hyperscale cloud providers are still racing to expand computing power. Amazon, Microsoft, Alphabet, and Meta are projected to have capital expenditures nearing $700 billion in 2026. On the other hand, pessimists warn that chip stocks now account for 18% of the S&P 500 index, a more than two-decade high. This extreme market concentration heightens systemic risk. The chief market technician at BTIG warns that after a "parabolic" rise, the semiconductor index could face a correction exceeding 20%.
Despite frequent short-term overheating signals, many viewpoints argue that the core logic supporting the long-term growth of AI chips—trillions in AI capital expenditures—remains unchanged. The current crowded trade resembles a rebalancing of positions under high valuations rather than the end of the AI bull market. As Bank of America strategist Michael Hartnett cautioned, when market cash levels drop to a low of 3.9%, the market lacks sufficient "dry powder" to cushion against shocks should bad news emerge.
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