Governments around the world are making efforts to crack down on teen social media use amid mounting evidence of potential harms, but critics argue blanket bans are an ineffective quick fix.

Australia became the first country to enforce a sweeping social media ban for under-16s in December, requiring platforms like Meta’s Instagram, ByteDance’s TikTok, Alphabet’s YouTube, Elon Musk’s X, and Reddit to implement age verification measures or face penalties.

Several European countries are now looking to follow Australia’s lead, with the U.K., Spain, France, and Austria drafting their own proposals. Although a national ban in the U.S. looks unlikely, state-level legislation is underway.

It comes after Meta, the parent company of Facebook, Instagram and Threads, faced two separate defeats in trials related to child safety and social media harms in March.

A Santa Fe jury found Meta misled users about child safety on its apps. The next day, a Los Angeles jury ruled that Meta and YouTube designed platform features that contributed to a plaintiff’s mental health harms.

These developments are set to “unleash a lot more legislation,” Sonia Livingstone, social psychology professor and director of the London School of Economics’ Digital Futures for Children center, told CNBC.

However, Livingstone said a social media ban for teens is a slapdash solution from governments that have failed to properly police tech giants for years.

“I think the argument for a ban is an admission of failure that we cannot regulate companies, so we can only restrict children,” she said, explaining that the U.S. and Europe already have a lot of legislation in the books that isn’t being enforced.

“When are governments really going to enforce, raise the stakes on fines, ban the companies if necessary for not complying,” she added.

Experts argue the sector has for too long escaped accountability and the rigid requirements faced by other industries.

“[Governments] should be implementing the law [and] big tech companies should be facing a slew of regulatory interventions that forbid a whole series of practices that they currently do,” Livingstone said.

She highlighted the U.K.’s Online Safety Act, which “requires safety by design” — this means features such as Snapchat’s “Quick Add” that invite teens to befriend others should be stopped, according to Livingstone.

Livingstone believes that a blanket ban wouldn’t even be under discussion if social media companies had undergone appropriate premarket testing to establish if their features are safe for their target audience.

“There are lots of areas where we have a well functioning market that requires testing to establish it meets the standards…[before products] can go into the market,” she said. “If we did that for AI and for social media, we would be in a whole different place and we’d not be having to talk about banning children from anything.”

Josh Golin, executive director at Boston-based non-profit Fairplay for Kids, told CNBC that he’d like to see “privacy and safety by design legislation rather than blanket bans” across the U.S.

This includes passing the Children and Teen Online Privacy Protection Act to put a stop to personal data-driven advertising towards children, so there’s “less financial incentive for social media companies to target and addict kids.”

Golin added that passing the Senate’s version of the Kids Online Safety Act (KOSA) is also key to ensuring platforms are held legally responsible for design features that can cause addiction or other harms.

He added that Meta has already successfully lobbied to stop KOSA even though it passed the Senate in 2024. But, if it continues to block legislation further, Golin thinks this could see further pressure “line up behind bans because addictive and unsafe is not OK.”

Many Australian teens flouted the social media ban when it first came into force in December. A BBC report found that downloads of VPNs, which hide users’ locations to avoid country-specific restrictions, increased before the ban.

Additionally, downloads of some apps that weren’t yet affected such as Lemon8, Yope and Discord also surged in the days after the law came into effect, per the report.

“I think it [a ban] certainly gets rid of all the harmful aspects, but it gets rid of the good ones too and I’m just not yet sure if that’s proportionate,” Nash added.

Elon Musk’s SpaceX has confidentially filed for an IPO with the Securities and Exchange Commission, sources told CNBC’s David Faber, bringing Elon Musk’s rocket company one step closer to what’s expected to be a record public offering.

Bloomberg was first to report on SpaceX’s confidential filing, citing people familiar with the matter, and adding that the company could seek a valuation of $1.75 trillion, with a listing around June.

Founded by Musk in 2002 to develop and operate reusable rockets, SpaceX has turned into NASA’s biggest launch partner after the agency ended its space shuttle program in 2011. The company merged with Musk’s xAI in February, creating a combined entity that he valued at the time at $1.25 trillion.

When SpaceX eventually lists, Musk will become the first person to helm two separate trillion-dollar publicly traded companies. Musk is the world’s richest person, with a net worth of close to $840 billion, according to Forbes. Tesla, which Musk has counted on for the vast majority of his liquid wealth, has a market cap of around $1.4 trillion.

A confidential filing allows companies to submit their financials to the SEC for regulatory review before revealing them to the public and prospective investors. SpaceX will have to release a public filing at least 15 days before its IPO road show.

While SpaceX still has numerous hurdles to clear to reach the public market, the offering — assuming it does happen — will be packed with superlatives. With the company reportedly looking to raise up to $75 billion, it would be more than three times the size of the biggest U.S. IPO to date. China’s Alibaba raised $22 billion in 2014, putting it ahead of Visa, which raised close to $18 billion in 2008.

SpaceX has received over $24.4 billion from its work with the federal government since 2008, according to FedScout, which researches federal spending and government contracts. That includes contracts from NASA, the Air Force and Space Force, among others agencies.

Reena Aggarwal, a professor of finance at Georgetown and an IPO expert, said that even with all hype around Musk and SpaceX, the company still needs a receptive public market. Stocks have been volatile of late due largely to the U.S.-Iran war and spiking oil prices. The Nasdaq is coming off its steepest weekly drop in nearly a year.

“You can have a great company, with great fundamentals and a lot of investor interest — and an IPO can still flop if the markets have turned south, if there’s too much volatility in the market,” Aggarwal said. Hopefully the current geopolitical situations will have cooled down by June and there will be less uncertainty.”

WATCH: SpaceX has filed confidentially for IPO

The White House hosted its “first humanoid robot guest” on Wednesday, with first lady Melania Trump appearing alongside a robot from robotics upstart Figure AI.

The robot, identified as Figure 3, accompanied the first lady during the second day of the Fostering the Future Together Global Coalition Summit, a gathering focused on technology and children’s education. 

The machine greeted attendees in multiple languages and described itself as “a humanoid built in the United States of America,” according to widely circulated footage from the event.

The display represented one of, if not the, highest-profile showcases of humanoid robotics in the U.S. to date and highlights how the tech is becoming a national priority amid global tech competition. Beijing has also promoted humanoid robots at highly publicized events this year.

The first lady used the robot to promote her push for artificial intelligence in children’s education, suggesting that the robots could one day act as interactive educators at home. However, Figure AI says its third-generation humanoids are also applicable for more general purposes, including commercial and household tasks. 

The White House spotlight is likely to boost the brand of Nvidia-backed Figure AI, a lesser-known robot company compared to larger humanoid players like Tesla‘s Optimus and Boston Dynamics, though some of its team comes from those competitors, as well as tech giants like Apple.

Figure AI was founded in 2022 by Brett Adcock, a tech entrepreneur and billionaire who previously co-founded the publicly traded drone company Archer Aviation and a digital hiring marketplace Vettery. 

Powering its robots is the firm’s in-house Helix AI system, a vision-language-action model that powers its robots and enables learning through observation and verbal commands.

Amid growing investor excitement for physical AI, the firm raised more than $1 billion in its Series C funding round in September led by Parkway Venture Capital with participation from other notable investors such as Nvidia, Intel Capital, Qualcomm Ventures and Salesforce. That gave it a post-money valuation of $39 billion. 

The fundraising is expected to be put towards the firm’s aim to deploy thousands of robots in homes and logistics over the coming years — a goal that has likely been made easier by a major endorsement from the White House. 

Figure AI has already begun work with its first commercial customer in BMW, deploying its robots for tasks like handling sheet metal parts in manufacturing facilities.

It’s possible that Melania’s endorsement of Figure AI’s robots as potential educators will trigger a reexamination of an ongoing lawsuit the company found itself in last year. 

In November, Figure AI was sued by its former head of product safety, who alleged he was fired after warning executives that the company’s robots were powerful enough to fracture a human skull.

Gruendel also alleged that one robot had carved a gash into a steel refrigerator door during a malfunction. Figure AI contends that Gruendel had been fired for poor performance, and described the allegations as “falsehoods.” Figure AI countersued in January, saying Gruendel failed in his role to help the company build a safe robot.

The lawsuit drew attention to broader questions about safety standards in humanoid robotics development and remains pending. 

Interestingly, the White House event on Wednesday wasn’t the first time that a company connected to Adcock received some major shine from the Trump administration. 

Shares of the drone company he co-founded, Archer Aviation, surged in June last year after U.S. President Donald Trump signed an Executive Order directing the establishment of a program to promote the safe integration of electric air taxis in U.S. cities.

Archer is participating in the initiative and is working on projects involving aircraft demonstrations. Following the June 2025 executive order, Archer raised $850 million in a registered direct stock offering. 

He remains a shareholder, according to investment research platform Business Quant, but he has no active executive, board, or advisory position at the company. 

President Donald Trump on ​Saturday ​threatened ​to send federal ⁠immigration agents ‌to U.S. ⁠airports unless congressional Democrats immediately ‌agree to fund the Department of Homeland Security.

“I will move our ⁠brilliant and ‌patriotic ‌ICE Agents to the Airports ⁠where they will ⁠do ⁠Security like no one ​has ‌ever seen before,” Trump wrote in ​a Truth Social post. The Trump administration has faced heavy criticism for aggressive deportation tactics by Immigration and Customs Enforcement and Border Patrol agents.

Trump claimed ICE agents handling airport security would arrest immigrants who are in the U.S. illegally, specifically targeting individuals from Somalia.

In a separate post later in the day, Trump said he plans to move ICE agents into airports as soon as Monday, telling them to “GET READY.”

“I look forward to moving ICE in on Monday, and have already told them to, ‘GET READY.’ NO MORE WAITING, NO MORE GAMES!” he wrote.

When asked for comment, the White House referred to Trump’s social media. DHS did not immediately respond to CNBC’s requests for comment.

A bipartisan group of senators met with DHS border czar Tom Homan last night to discuss additional immigration enforcement concessions made by the White House on Friday in an attempt to end the partial government shutdown, POLITICO reported, citing lawmakers in attendance.

The Senate is in session Saturday and Sunday, working on other legislative issues, but it is unclear whether further talks or a vote on the new DHS funding proposal will take place.

Democrats are demanding changes to how federal immigration enforcement operates in exchange for releasing the funding. The White House and Democrats have been trading proposals for over a month but have not yet come to an agreement on a deal.

The DHS shutdown has been less disruptive than last year’s record-long government shutdown. But since much of DHS is considered essential, employees are required to work without pay.

The effects of the funding lapse and lack of pay are being felt at U.S. airports, where Transportation Security Administration agents are quitting or calling out sick. DHS employees missed their first full paychecks last week.

The shortage of agents has caused obscenely long lines at security checkpoints, including in Atlanta and Houston, where spring break travel is in full swing.

“If a deal ⁠isn’t ‌cut, you’re going to see what’s happening today ⁠look like child’s play,” Transportation Secretary Sean Duffy told CNN on Friday. Earlier in the week, Duffy warned that smaller airports could shut down entirely soon due to staffing.

In a separate post earlier in the day, Tesla CEO and former Trump advisor Elon Musk said he would like to cover the paychecks of TSA ⁠officers as the shutdown continues.

“I would like to offer to pay the salaries of ‌TSA personnel during this funding impasse that is negatively affecting the lives of so many Americans at airports throughout ​the country,” Musk, the world’s richest man, said in a post on X.

Musk did not immediately respond to a request for comment.

The average salary for TSA agents is about $46,000 to $55,000, according to a recent Associated Press report.

It’s unclear how such an offer would work.

Last year, Trump announced a wealthy, unnamed donor provided $130 million to help cover military pay shortfalls caused by the administration’s first government shutdown, the longest in history. That mystery donor was revealed to be Timothy Mellon, an heir to a renowned Gilded Age banking family, The New York Times later reported.

But Mellon’s donation worked out to only about $100 per service member. It costs nearly $6.4 billion to pay U.S. troops every two weeks. And such a donation might have violated the Antideficiency Act, which bars federal agencies from spending funds that have not been appropriated by Congress, the Times reported.

— Annie Nova and Dan Mangan contributed reporting

A jury in California found that Elon Musk defrauded Twitter shareholders during the runup to his $44 billion acquisition of the social media company, according to a verdict issued on Friday.

Total damages could reach up to $2.6 billion, attorneys for the plaintiffs said.

The class action lawsuit, Pampena v. Musk, was originally filed in October 2022, after Musk completed his purchase of Twitter for $54.20 per share. He later renamed the company X, before merging it with his artificial intelligence company xAI, and then with SpaceX, his reusable rocket manufacturer.

“This is a great example of what you cannot do to the average investor — people that have 401ks, kids, pension funds, teachers, firemen, nurses,” Joseph Cotchett, an attorney for the Twitter investors, told CNBC at the San Francisco courthouse. “That’s what this case was all about. This was not about Musk. It was about the whole operation.”

In an emailed statement, Musk attorneys with Quinn Emanuel said, “We view today’s verdict, where the jury found both for and against the plaintiffs and found no fraud scheme, as a bump in the road. And we look forward to vindication on appeal.”

After Musk bid to buy Twitter in April 2022, his sentiment towards the deal quickly soured as he cast doubt on the company’s claimed level of bots, spam and fake accounts on its platform. Musk wrote in a tweet the following month that his acquisition was “temporarily on hold” until Twitter’s CEO could prove its inauthentic account levels were around the 5% reported in the company’s SEC filings.

Musk’s tweets and additional comments sent shares of Twitter sliding by almost 10% in a single session. The jury deliberated for four days and unanimously found that Musk’s tweets on May 13 and May 17 were materially false or misleading.

Former Twitter shareholders, including retail investors and options traders, argued that Musk’s remarks amounted to a scheme to pressure the company’s board to sell to him for a lower price than his original offer. They claimed he was motivated by stock price declines at Tesla, which would require him to sell even more shares in the automaker than he’d intended in order to finance the buyout.

The plaintiffs in the suit said they sold shares below $54.20 following and in response to Musk’s posts and comments during press interviews. The potential damages figure is based on expert estimates of how much Musk’s flip-flopping affected the share price during the class period.

Attorneys for the Twitter investors said it will be about 90 days before claims administration is set up, and it will then take a couple of months for the government to process claims and for investors to begin to recoup some of their losses.

Musk’s attorneys argued their client’s remarks were based on well-founded concerns about bots, spam and fake accounts on Twitter, and did not amount to securities fraud or a scheme to depress the company’s stock price.

The jury said that though Musk had made false and misleading statements that harmed some Twitter shareholders, he did not engage in a specific scheme to defraud investors.

While the verdict marks a stinging rebuke for Musk, the financial implications are minimal considering his net worth, which currently sits at about $650 billion, according to Bloomberg.

WATCH: Why Tesla is pivoting

Micron’s revenue almost tripled in the latest quarter as results topped analysts’ estimates and guidance sailed past expectations. The stock, which is up more than 350% in the past year, slipped in extended trading.

Here’s how the company did relative to LSEG consensus:

• Earnings per share: $12.20 adjusted vs. $9.31 expected
• Revenue: $23.86 billion vs. $20.07 billion expected

Micron is benefiting from soaring demand for Nvidia graphics processing units that run generative artificial intelligence models. Each generation of Nvidia chip packs in more memory, creating a supply crunch. Micron has been working to add capacity, as have competitors Samsung and SK Hynix.

Revenue in the fiscal second quarter increased from $8.05 billion a year earlier, according to a statement.

For the current period, the company expects about $33.5 billion in revenue, up from $9.3 billion a year ago, implying growth of over 200%. Adjusted earnings per share will be about $19.15, Micron said. Analysts polled by LSEG had expected $12.05 in adjusted earnings per share on $24.3 billion in revenue.

“The step-up in our results and outlook are the outcome of an increase in memory demand driven by AI, structural supply constraints and Micron’s strong execution across the board,” CEO Sanjay Mehrotra said in prepared remarks the company issued at the time of the release.

Micron’s stock has been on a tear. The shares tripled in 2025 and have jumped another 62% year to date as of Wednesday’s close. Among the 10 most valuable U.S. tech companies, Micron is the only one that’s up. Oracle is the leading decliner, down 22%, and Microsoft and Tesla have also seen double-digit percentage drops.

“Looking at how the shares were trading going into this earnings report, I thought the biggest risk was high investor expectations,” said Hendi Susanto, a portfolio manager at Gabelli Funds, in an email. “However, fiscal third-quarter guidance is strong, well above analysts’ and my own expectations.”

Mehrotra said that AI and conventional servers are facing a “lack of adequate DRAM and NAND supply.” That refers to the company’s traditional memory products that have long been used in data centers and devices.

Memory companies have been shifting production capacity largely to high-bandwidth memory, which is embedded onto Nvidia’s latest GPUs and many other chips powering AI. Those products have higher margins.

The company’s GAAP gross margin, the profit left after accounting for the cost of goods sold, more than doubled in the past year to 74.4% from 36.8%, and increased from 56% in the prior quarter.

Net income climbed to $13.8 billion, or $12.07 per share, from $1.58 billion, or $1.41 per share, in the same quarter last year.

Micron said revenue in its cloud memory business rose more than 160% to $7.75 billion. The mobile and client unit saw even steeper growth, with revenue jumping to $7.71 billion from $2.24 billion a year ago.

Memory is typically a commodity business, which comes with lower margins than other silicon products and short-term contracts. In the past few months, memory companies have signed longer-term contracts as semiconductor makers work to ensure future capacity.

“As AI evolves, we expect compute architectures to become more memory-intensive,” the company said in an earnings presentation. “This is why we strongly believe that Micron is one of the biggest beneficiaries and enablers of AI.”

Mehrotra said on the earnings call that volume production of HBM4 for Nvidia’s Vera Rubin started in the fiscal first quarter, and next-generation HBM4e products will ramp in 2027. Nvidia has said it will utilize custom HBM in its next-generation Feynman GPU coming in 2028.

Mehrotra added that capital expenditures will “step up meaningfully” in fiscal 2027, with construction-related costs increasing by over $10 billion.

Micron is building two giant new campuses of fabrication plants in Idaho and New York to increase its memory manufacturing capacity in the U.S. Mehrotra said on the call that initial production at the Idaho site is expected by mid-2027. Micron broke ground in January on the massive $100 billion New York campus, and expects wafer output by the second half of 2028.

WATCH: How Micron is building the biggest-ever U.S. chip fab, despite China ban

Tesla is expanding ties with South Korea’s LG Energy Solution, striking a deal to buy $4.3 billion worth of battery cells for energy storage systems that will be made in Lansing, Michigan.

The plant was formerly developed for a joint venture between LG and General Motors before the automaker decided to retreat from that initiative in late-2024, selling its stake to LG as part of a pullback in the automaker’s electric vehicle investments.

While Tesla still makes most of its revenue from EVs, the company is investing in its more rapidly growing energy business, as data centers drive up electricity demand. Tesla’s Megapacks can store power produced using intermittent sources like solar or wind, or during off-peak hours, then make it available for use when demand is high.

Tesla currently sells Powerwall backup batteries for residential use with its solar installations, and much larger Megapack and Megablock systems for utility-scale power storage. Last year, revenue in the company’s energy segment increased 27% to $12.8 billion, accounting for 13% of total revenue. Total revenue dropped due to a 10% decline in the auto business.

Details of the Tesla-LG partnership were announced during an Indo-Pacific Energy Security Summit in Japan, according to a release from the U.S. Department of the Interior. The Trump administration announced a total of $56 billion in private sector commitments at the event.

A spokesman with LG Energy Solution said the company “will establish dedicated production lines at our Lansing facility to deliver on this agreement.” LG last year retooled the facility to build LFP (lithium iron phosphate) prismatic cells, later confirming a $4.3 billion deal with an unnamed company.

GM continues to have a significant presence in and around the Lansing battery plant, but the company has largely retrenched from the EV market, announcing $7.6 billion in related write-downs.

Tesla, meanwhile, expects its energy business to “have very high growth for as far into the future as we can imagine,” CEO Elon Musk said during the company’s fourth-quarter earnings call in January. Chief Financial Officer Vaibhav Taneja cautioned that the energy segment expects “margin compression” from low-cost competition and the cost of tariffs.

Tesla’s competition includes companies like BYD in China and climate-tech startups like Form, which is making iron-air batteries, and others.

WATCH: Why the EV factory boom in the U.S. south is suddenly in trouble

NEW YORK — Lucid Group expects to be cash flow positive late this decade as it plans to grow its vehicle lineup and increase its software and technology offerings, the all-electric vehicle maker announced Thursday during its first investor day in nearly five years as a public company.

The EV company aims to accomplish that through market expansion into midsize vehicles, robotaxis and new counties, specifically in Europe. It also expects to achieve efficiency gains and software revenue growth with the introduction of improved advanced driver assistance systems and a new Lucid artificial intelligence assistant.

That cash flow target is aggressive given the automaker’s current performance and waning demand for EVs in the U.S. While Lucid has been able to increase sales and narrow losses, the company lost $2.7 billion on revenue of $1.35 billion in 2025. It had negative free cash flow of $3.8 billion in 2025, a loss that was roughly 31% larger than a year earlier.

Lucid interim CEO Marc Winterhoff — who unexpectedly took over for company founder Peter Rawlinson last year — on Thursday said the company’s “north star” is “accelerating to profitability,” reiterating the investor event’s theme.

The automaker has been trying to increase investor interest in the company as it prepares to launch a new midsize vehicle at the end of this year. Its largest shareholder, Saudi Arabia’s Public Investment Fund, has also changed its investment strategy in the company from capital investment to revolving credit.

Shares of Lucid were off roughly 8% during much of the Thursday event despite the company giving its most detailed product and expansion plans to date.

Winterhoff and Uber President and Chief Operating Officer Andrew Macdonald on Thursday announced they are planning to expand a previously announced tie-up for robotaxis to include upcoming midsize vehicles.

Expansion into midsize and autonomy is expected to significantly increase Lucid’s total addressable market, or TAM, from $40 billion for its current Air sedan and Gravity SUV to $700 billion, executives said Thursday.

The three midsize vehicles are targeted at upscale buyers, younger “trendsetting achievers” and outdoor enthusiasts, Jenkins said. The last would be a direct competitor to fellow EV competitor Rivian Automotive, which is expected to release a new R2 midsize vehicle this spring, beginning with a roughly $58,000 version of the vehicle.

Lucid has said its midsize vehicle is expected to begin at roughly $50,000. That would position it in line with the average transaction prices of new vehicles in the U.S. as well as entry-level models of Rivian’s R2.

Both Rivian and Lucid are attempting to reassure investors that they can not only compete in a troubled EV market but thrive through the expansion of new vehicles and technologies to better compete against U.S. EV leader Tesla. Lucid said its new midsize EV platform will be class-leading in efficiency, something the company has strived to do with all its vehicles.

Both have touted having enough capital to get them through near-term initiatives but their long-term viability is still a major question for investors.

Lucid has said its total liquidity of $5.5 billion, including a roughly $2 billion delayed draw term loan credit facility from Saudi’s PIF, is enough to get through the first half of 2027.

Rivian ended the fourth quarter with $6.59 billion in total liquidity, including nearly $6.1 billion in cash, cash equivalents and short-term investments, as the company attempts to ramp up production this year of its midsize vehicle and new autonomy technologies.

BARCELONA, Spain — Robotics will become a “larger opportunity” for Qualcomm within the next two years, CEO Cristiano Amon told CNBC, as the chip giant continues its foray into areas beyond the smartphone.

In January, Qualcomm launched a robotics processor under the Dragonwing brand name, as it looks to create a chipset that can work on multiple robotics platforms. It’s a similar approach the company has taken to smartphones, where its Snapdragon processors have become a key chip used by electronics companies.

“I think robotics will start to get scale within the next two years,” Amon told CNBC on Monday, in response to a question about when robotics becomes a material business for Qualcomm.

“I think it’s going to become like a larger opportunity within two years,” he added during the interview at the Mobile World Congress in Barcelona, Spain.

There are lots of different types of robots, from those focused on industrial applications such as robotic arms, through to humanoid robots, the type Tesla and a plethora of Chinese companies are developing.

There are various forecasts for the size of the robotics market. McKinsey projects the market for general-purpose robots could reach $370 billion by 2040, while analysts at RBC Capital Markets have forecast a global total addressable market for humanoids of $9 trillion by 2050.

Robots need processors and a lot of difficult engineering to move. But the increased bullishness around robotics has also come due to advances in AI models. These models are designed to power the robot so it can understand the world around it and act accordingly. Robots are often spoken about in a category called physical AI.

“People have said just robotics alone could be a trillion-dollar opportunity in terms of market size … the reality is, we see now, because of physical AI, robots have become a lot more useful,” Amon said.

Jensen Huang, CEO of Nvidia, said last year that robotics is one of the company’s major potential sources of growth.

Robotics is a key theme at Mobile World Congress, with different robots on display. On Sunday, Chinese smartphone player Honor teased its first humanoid robot.

There were plenty of reasons for investors to be on edge in the current setup for stocks even before the U.S. and Israel launched a major military campaign against Iran over the weekend.

The month of February, and midterm election years in particular, have a history of being bad for stocks. The cash drain among the mega-cap tech stocks that have led the market for years has been stressing heady market valuations, with Amazon headed back to a negative free cash flow situation and Alphabet dipping deeply into the bond market to finance its data center buildout — and it is far from alone in seeking debt market financing related to AI. The threat from AI to sectors across the market was walloping companies from software to trucking to commercial real estate as new worst-case scenarios were theorized on an almost daily basis.

All of that resulted in an S&P 500 that has gone nowhere this year, with a return of less than one-half of one percent for an index that is likely to see more volatility in the week ahead. But after three years of gains — and even before the uncertainty of a prolonged war in the Middle East and the prospect of $100 oil tipping the global economy into recession — a few months of sideways trading was not a shock to investors. They have been increasingly moving away from bonds as the primary hedge against the stock market and it’s not just gold, up another 20% this year, that has boomed. Investors have been turning to options-based exchange-traded funds in increasing numbers over the past few years as a result of fears about the sustainability of the stock market’s run combined with the need to generate income among many older Americans.

According to ETF Action founding partner Mike Akins, one of the most notable splits in the ETF world is between the heavy use of “the big box categories,” core stock and bond index funds, by institutional investors — where as much as 60-70% of ownership is institutional — versus the ownership of “non-traditional” ETFs in areas that have now grown to include many options-based ETF strategies and has been one of the biggest product development trends in recent years. There has been an estimated $170 billion invested in “synthetic income” ETFs which use options to focus on generating income, and $100 billion in “buffer” ETFs that use options to focus on downside protection — with most of the assets coming from retail investors or investment advisors for their individual investor clients, Akins said on the most recent episode of CNBC’s “ETF Edge.”

According to Tidal Financial Group senior vice president of product development Aga Kuplinska, the market is in the “overlay everything” phase as issuers take any underlying asset class or strategy and layer on options for income and hedging. It’s no longer just in areas where the search for income has long been a focus, such as dividend stocks, but for areas of the market long associated more typically with the search for growth, like tech stocks. “Income has been the No. 1 selling point and will remain so going into future because the demand for yield just doesn’t go away and during uncertain market conditions the added benefit of income seems to resonate well with investors,” she said on “ETF Edge.”

While institutions have long used similar strategies, the availability of the options-based strategies in an ETF wrapper has made it more efficient for retail investors to access this approach, and Akins warned that “in some respects, with synthetic income in particular, we’ve gotten to the Wild West in terms of what we can do.”

The ETF experts said there are successful examples of fund companies generating both maximum income for investors from these strategies and those generating a more conservative level of income. In the tech stock-concentrated Nasdaq 100 synonymous with the Invesco QQQ ETF (QQQ), for example, there are options-based ETFs that have performed well amid the tech tumult and have been a “nice solution for investors to generate income off a more volatile strategy while still getting upside,” Akins said.

Nevertheless, Kuplinska added that investors need to start from the understanding that “there is no free lunch in options income. The more income, the more upside you typically give up.”

Akins said that some of the yields on offer are so high investors need to understand what it means for a fund’s net asset value. With some ETFs indicating yields or distribution rates at almost 100%, in effect that means almost equivalent erosion of the fund’s net asset value — otherwise known as a “yield trap.” The range of yields in this growing strategic ETF niche is wide — with some ETFs targeting 5-8% and others 8-12%, as well as those verging on 100% — but it is a signal that “lots of education has to be done,” Akins said.

Kuplinska said with any derivatives-based income or hedging ETF strategy, what is taking place behind the scenes at the investment manager running the fund is very important, from regulatory and compliance protocols to the sophistication level of the trading desk. “These are incredibly difficult strategies to back test,” she said on the podcast portion of “ETF Edge.” She noted these ETFs are all subject to regulatory requirements to calculate risk on a daily basis, but she added, “Anything can be a weapon of mass destruction if not used as intended or properly.”

After the the past few years of rapid launches within this ETF category, “white space is much harder to find,” Kuplinska said. Options-based investing has “been done on everything out there,” she added. But she does think one more wave of options-based ETFs is coming and it will be less about the chase for maximum yield levels and designed more to focus on income stability and risk control. 

You can watch their conversation from the most recent “ETF Edge” above to learn more about proper use of options-based ETFs.

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