Volatility around the AI trade has been rough this week for bullish bets on stocks via leveraged ETFs

Memory stocks such as SK Hynix were a bright spot in the stock market earlier this year.

Leveraged ETFs tied to chipmaker SK Hynix were pummeled Tuesday, amid a punishing selloff in semiconductor stocks this month as whiplash around the powerful artificial-intelligence trade continues.

While the pool of leveraged ETFs giving traders a way to make amplified bets on daily returns of single stocks as well as equity indexes and other assets has swelled over the past couple of years, speculating on price swings is risky. And when volatility jumps, losses can get ugly.

Memory makers SK Hynix (SKHY) (KR:000660) and Samsung Electronics (KR:005930) dominate South Korea's equity market, and saw their shares skyrocket earlier in the year on surging demand for their products used in the buildout of AI infrastructure. SK Hynix , which listed its shares in the U.S. just this month amid AI-related enthusiasm, is having a rough week that's left leveraged ETFs deep in the red.

The GraniteShares 2x Long SK Hynix Daily ETF SKUU - which seeks two times the daily performance of SK Hynix's American Depositary Receipts, or ADRs, that trade on the Nasdaq - plunged 18.1% on Tuesday, at last check, for a weekly loss of 30.2%, according to FactSet data. The ProShares Ultra SK Hynix ETFSKHU, which similarly seeks two times the daily performance of the company's ADRs, slid 18.6% on Tuesday for a weekly slump of almost 29%, according to FactSet data, at last check.

Extreme volatility risks triggering huge losses for leveraged ETFs - and even potentially a relatively rare unplanned delisting. With multiple firms offering ETFs with leveraged strategies targeting the same single stocks, the competition for assets can leave some funds struggling to gain traction, putting them at risk of shutting down.

Meanwhile, memory stocks were under selling pressure in the U.S. as well, with shares of Micron Technology $(MU)$ and Sandisk $(SNDK)$ slumping. Among leveraged ETFs designed to magnify bullish bets on Sandisk, the Tradr 2X Long SNDK Daily ETF SNXX plummeted 28.5% on Tuesday, according to FactSet data.

The brutal day for memory stocks was hurting ETFs targeting South Korea's equities market KR:180721 more broadly.

For example, the iShares MSCI South Korea ETF EWY dropped slightly more than 6% on Tuesday. And for traders who had turned to the Direxion Daily MSCI South Korea Bull 3X ETF KORU for their bullish bets, the fund saw a steep drop 17.8%, according to FactSet data.

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As for the U.S. stock market, major benchmarks finished mostly higher Tuesday despite selling in the S&P 500's tech sectorXX:SP500.45. The S&P 500 SPX rose 0.2%, while the tech-heavy Nasdaq Composite Index COMP fell 0.2% and the Dow Jones Industrial Average DJIA rallied 1%.

Selling in chip stocks was pronounced. The iShares Semiconductor ETF SOXX posted a big drop of 4.8% on Tuesday, bringing its July losses to 23.3%, according to FactSet data.

-Christine Idzelis