Semiconductor stocks have been shellacked in the latest AI selloff. But if you want to see real pain, take a look at the riskier funds that try to double the daily returns on stocks like Sandisk and Micron Technology.

Single-stock leveraged ETFs use complicated derivatives such as options, swaps, and futures to enhance the daily performance of the individual stock or index it tracks, typically by two times.

That's great news for investors on days when the stocks these ETFs track go up. But they didn't go that way on Thursday.

So when Sandisk tumbled 22%, the T-REX 2X Long SNDK Daily Target ETF plunged 44%. That's just one example. The GraniteShares 2x Long MU Daily ETF, Leverage Shares 2X Long AMD Daily ETF and Direxion Daily MRVL Bull 2X ETF, which track Micron, AMD and Marvell Technology, respectively, all took nasty tumbles Thursday.

There was some relief Friday, with most of the AI-related leveraged single-stock ETFs gaining more than 5% as tech stocks rebounded.

But the problem for any investors that hold on to these types of ETFs for more than a trading day is that the returns compound, meaning that they are much riskier than the average investor might suspect. Look at T-REX's long Sandisk ETF for example. It has plunged 93% from its 52-week high.

These funds are not meant to be bought and held for much more than a day. In fairness to the companies that offer these ETFs, they typically go out of their way to warn investors of the risks tied to long-term ownership of these funds. REX Shares, one of the co-creators of the T-Rex Funds, says in a section on its website for example that "because daily returns compound, returns over periods longer than one day are very likely to differ from the stated multiple."

Of course, traders taking the opposite view and buying leveraged inverse, or short, ETFs tied to certain stocks have made out handsomely on big down days. The Tradr 2X Short SNDK Daily ETF surged 44% Thursday. Still, it plummeted 25% Friday morning as Sandisk rebounded.

What's more, leveraged short ETFs also reset daily. So they don't do as well over a longer stretch even if the stock they track is in a bearish trend. Just look at Tradr's Sandisk short ETF. It's actually down 2% during the past three months even though Sandisk has tumbled 28% during the same time frame.

So any investor in leveraged ETFs needs to be incredibly active. Scott Opsal, director of investment strategies for The Leuthold Group, said in a report in late October that even though "leveraged ETFs may offer the prospect of retiring in luxury...they come with considerable mental pain along the way."

The increased popularity of leveraged ETFs is also a potential problem for investors that don't even own or trade them. That's because the daily selling on down days may magnify market losses.

Equity derivatives strategists at J.P. Morgan Securities said in a report that Thursday's big selloff was the second time in a week that levered ETFs were forced to sell late in the trading day. The J.P. Morgan strategists estimated that these funds sold more than $60 billion of stocks into the closing bell -- and that 90% of that was tied to chip stocks, funds tied to the Nasdaq 100 index as well as the State Street Technology Select Sector SPDR ETF.

So the rise of ETFs tied to actively traded tech stocks, as well as recent IPOs such as SpaceX and the U.S.-listing of South Korean memory chip giant SK Hynix, should be a cause for concern.

But the trend of single-stock ETFs isn't likely to slow down anytime soon. Many fund companies already have plans to launch leveraged ETFs (both long and short) tied to Anthropic once the Claude developer goes public -- although there are questions about whether Anthropic may need to alter its plans in light of the recent market volatility.