Momentum ETF Soars Amid Retail Rush Fueled by AI Enthusiasm

The Momentum ETF (MMT) captured significant investor attention in 2024, propelled by the extraordinary surge in AI-related stocks. Yet, as 2025 progresses, the fund's performance has taken a downturn, prompting important questions about whether its previous gains are sustainable. This review explores how volatility in the AI sector, evolving retail investor trends, and overall market shifts are influencing MMT’s prospects—raising the issue of whether its momentum can persist or if it stands as a warning against speculative excess.

AI Optimism and the 2024 Surge

MMT’s dramatic ascent in 2024 was largely due to its significant holdings in AI-focused companies such as

(NVDA), (PLTR), and (TSLA). These firms became market favorites as AI integration accelerated, in AI token usage. The fund’s focus on high-growth technology stocks fit seamlessly with the “Magnificent 7” narrative, drawing in both institutional and individual investors.

But this alignment has proven unstable. By 2025, the same AI stocks that fueled MMT’s rise have lagged, with

falling 10% and dropping 29% since the start of the year. that momentum funds like MMT, which lack defensive holdings, are especially exposed during market downturns.

Market Dynamics and the 2025 Reversal

In 2025, the market landscape has changed, with value and defensive stocks outperforming the tech-centric momentum strategies that led in 2024. This shift signals a change in risk tolerance as investors confront economic uncertainty and disappointing earnings in the AI space. For example,

over the past year amid weak results and executive instability. These events underscore how vulnerable AI-driven stories are when fundamentals deteriorate.

At the same time,

. Global ETF assets are expected to hit $25 trillion by 2030, spurred by developments in active ETFs and digital asset offerings. Still, this expansion does not ensure MMT’s continued success. The fund’s difficulties in 2025—only two out of nine large-cap momentum ETFs are in the top decile of their Morningstar categories—reflect a larger issue: momentum strategies must evolve with changing markets or risk becoming obsolete.

Retail Investor Behavior and Structural Shifts

Shifts in retail investor activity have added further complexity to MMT’s outlook.

and a move away from traditional ESG investments have transformed the retail environment. More investors are seeking quick profits rather than long-term positions in ETFs like MMT, which depend on ongoing momentum. This is further influenced by the widespread availability of trading platforms, allowing individuals to hedge or speculate on single stocks instead of broad ETFs.

Additionally,

across Europe and Asia is channeling funds into alternative investment vehicles. These platforms typically prefer diversified, low-fee approaches over concentrated bets on fast-growing sectors. For MMT, which relies on retail inflows, this marks a significant structural challenge. in the fund—1607 Capital Partners LLC, for example, boosted its holdings by 84.7% in Q4 2024—but institutional interest alone cannot compensate for waning retail participation.

Assessing Sustainability

Whether MMT’s rally can last depends on three main factors:
1. AI Sector Resilience: Can ongoing demand for AI infrastructure balance out short-term setbacks? While

, at major players like C3.ai indicate that growth in the sector is not assured.
2. Strategic Flexibility: Has MMT made portfolio adjustments to reduce its exposure to AI sector risks? The fund has not revealed any specific changes, but such as C3.ai may be a wise move.
3. Retail Investor Trends: Will individual investors return to momentum strategies, or will they continue to favor other options? suggests a lasting shift in how retail capital is allocated.

Conclusion

MMT’s explosive growth in 2024 was the result of a unique combination of AI excitement and retail investor enthusiasm. However, the events of 2025 have revealed the instability of this momentum. While

, MMT’s future will depend on its ability to adjust to a market that is increasingly wary of tech-driven speculation. For now, the fund’s recent struggles highlight that even the most popular strategies are subject to market volatility and changing investor preferences.