Why The Direxion Daily Semiconductor Bull 3X ETF Plunged Nearly 20% Today

Shares of the Direxion Daily Semiconductor Bull 3X ETF (NYSEMKT: SOXL) plunged 18.4% on Tuesday as of 2:10 p.m. EDT.

The SOXL, as its name suggests, offers three times the daily exposure to the semiconductor sector through a combination of swaps, individual holdings, and semiconductor-focused ETFs, achieving leveraged exposure to the 30 largest semiconductor stocks.

The semiconductor sector is already one of the most volatile in the stock market, so when you add three times the leverage, it's possible to get days when the ETF moves 20% or more.

It seems like we're having one of those days today, as the recent steady rise in global bond yields appears to have triggered a massive rotation out of high-multiple semiconductors and into value, small-cap, and energy stocks.

Global bond yields spike, causing investors to sell semis

For context, even with this severe sell-off, the SOXL is still up nearly 200% for the year. The agentic artificial intelligence revolution hit its stride earlier in 2026, spurring unprecedented demand across all types of semiconductors, from GPUs and CPUs to memory and storage to networking.

After that type of run, many chip stocks currently trade at high multiples befitting growth stocks, as the market appears to be pricing in a few years of very strong earnings growth.Growth stocks tend to be more sensitive to interest rates, as higher rates discount future earnings more heavily.

U.S. Treasury Bonds, as well as yields on other government bonds around the world, rose earlier today, with some reaching multi-decade highs. It appears that hopes for another ceasefire between the U.S. and Iran were dashed today, prompting investors to anticipate higher oil and commodity prices and inflation.

Although yields have retreated a bit this afternoon, 10-year U.S. Treasury Bond yields hit 4.748% this morning -- the highest yield since 2007. In addition to U.S. government bond yields, global government bond yields hit multi-decade highs in Germany, France, and Japan, with the 10-year Japanese government bond reaching its highest yield in over 30 years.

Image source: Getty Images.

Higher rates harm semis in multiple ways

In addition to the semiconductor sector trading at high multiples, growth in these stocks is also contingent on billions of dollars in investment in AI data centers. These giant data centers require tens or even hundreds of billions of dollars and therefore often rely on debt financing for substantial parts of the build-out. Higher bond yields increase the cost of this financing, potentially slowing down expected growth.

Still, there haven't been any indications that demand for AI computing is actually slowing. If anything, it seems to be accelerating. Therefore, investors should prepare for more wild swings in both directions for chip stocks as they navigate the tension between high demand and inflationary pressures.

Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.