Nvidia stock is up roughly 90% over the last 12 months. While that's impressive, it might not be impressive enough for the most aggressive of traders. One leveraged investment vehicle saw a near-120% rise in that same period, while staying tied to Nvidia — but it's important for investors to be aware of the hefty risks that come with using leverage.
"The common sense part of using anything that's leveraged is that it's fine on the upside if it goes in your favor, but if it goes against you, there's amplified losses," Will Rhind, founder and CEO of GraniteShares, told Investor's Business Daily's "Investing with IBD" podcast. GraniteShares is behind several leveraged ETFs tied to popular stocks like Nvidia, Super Micro Computer and Tesla.
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But staying in a leveraged trade over a longer time horizon can be painful and dangerous. On Jan. 27, Nvidia stock took its biggest hit in several months, crumbling nearly 17% in value in a single day. That decline paled in comparison to the 34% plunge in 2x-levered ETFs tracking Nvidia stock.
Leveraged ETFs, as the name implies, are highly volatile investments best utilized by active traders seeking a tactical advantage over shorter time horizons. Such ETFs are not ideal for investors looking to buy and hold over long periods or who are seeking stability.
Leverage Amplifies Nvidia Stock's Highs And Lows
Despite the significant downsides, Rhind says leveraged ETFs remain popular with a certain type of aggressive, often institutional investor. After the plunge in late January, "we saw people coming in and buying," Rhind said, adding that he saw over $1 billion worth of inflows into the GraniteShares 2x Nvidia stock ETF at that time. "It was the most aggressive we've ever seen in our company's history."
Triggering the most recent surge into the ETF was likely investors and institutions betting Nvidia stock was oversold after AI competition from China's DeepSeek spooked the market.
Rhind says the performance of leveraged ETFs, particularly after big events, indicate just how much market interest there is in highfliers like Nvidia stock. "After several years of a bull market, what you're seeing in those instances is a heightened sensitivity around earnings," Rhind said.
Nvidia reports earnings on Feb. 26. Earnings are projected to jump 64% to 84 cents while sales pop 72% to $38 billion.
Nvidia stock is damaged but trying to battle back ahead of the quarterly report. Shares are retaking their 50-day line this week after DeepSeek's destruction several weeks ago fueled a sell-off below the key 200-day line.
While betting big on earnings can pay off, leveraged investments can be risky. Investors should exercise even more caution around major known events like quarterly reports because of the added uncertainty brought on by these risk events and the outsize moves stocks can make in both directions.
Nvidia Stock's Big Milestones Polarize Investors
But Rhind says volatility and large moves, both to the upside and downside, are part of the attraction. "It's just a different mentality that (short-term) traders have versus long-term investors," he said.
He says the activity in leveraged ETFs show strong polarization among investors in these stocks. "People are bullish or bearish on certain stocks, and looking to use our levered single-stock ETFs to play that."
But with the potential such trades could work against your portfolio, it remains important to manage the risk of any trade, especially leveraged vehicles, including by using reasonable position sizes, targeted entry points and sell rules to minimize losses.
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