Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
The recent bid in equity markets has partially been driven by stocks developing artificial intelligence technologies. Despite calls of the AI-stocks being in a bubble, there is no shortage of individuals warning about the dangers of artificial intelligence. It’s too early to know exactly how disruptive this technology will be, but in the meantime, many industries could possibly stand to benefit from its implementation, especially semiconductors.
A New Catalyst for Growth?
The chip sector has grappled with its fair share of headwinds over the past year. Much of it began with the supply chain disruptions following the Covid lockdowns. The sector went from having a major chip shortage, to then having a major supply glut.
But the AI revolution has the potential to lead to a new wave of demand for semiconductor chips. After all, the chips will need to be uniquely designed and then manufactured en masse to meet the market’s new demand.
Traders seeking to make a sector-wide bet on a resurgence in semiconductor demand may find an opportunity with Direxion’s Daily Semiconductor Bull 3X Shares (Ticker: SOXL), which seeks daily investment results, before fees and expenses, of 300% of the performance of the ICE Semiconductor Index*.
Below is a daily chart of SOXL as of June 1, 2023.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
Could a Market Rout Bring Chips Down?
Over time, most stocks tend to move together. Market bears have pointed out how stock market breadth is very weak by now, and the leadership being exhibited is limited to stocks in the tech and chip sector. The only caveat is sectors like tech and semiconductors tend to display leadership in the early-stages of new bull markets. Thus, it’s a matter of whether the strength can spread into other segments of the market.
From a technical standpoint, one could argue that chip stocks have become extremely overbought and have become a crowded trade. Traders looking to fade the AI-hype may consider Direxion’s Daily Semiconductor Bear 3X Shares (Ticker: SOXS), which seeks daily investment results, before fees and expenses, of 300% of the inverse performance of the ICE Semiconductor Index.
Traders should also keep an eye on some key earnings reports for a few semiconductor names. Some of the fund's significant holdings as of March 31, 2023 include Advanced Micro Devices (Ticker: AMD) (7.03%), Broadcom (Ticker: AVGO) (7.95%), Intel (Ticker: INTC) (4.82%), and Texas Instruments (Ticker: TXN). AMD recently reported its Q1 results that came in slightly above estimates. Its next report is on July 31. Texas Instruments will have its next earnings report on July 25, and analysts are looking for an EPS of $1.76. Guidance from the semiconductor sector has been largely cautious to say the least. Thus, these AI-related developments have been a pleasant surprise.
Below is a daily chart of SOXS as of June 1, 2023.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
Additional AI-Related Plays
Direxion offers traders additional means to speculate in the AI-space. The Direxion Daily Electric and Autonomous Vehicle Bull 2X Shares (Ticker: EVAV) seeks daily investment results, before fees and expenses, of 200% of the performance of the Indxx US Electric and Autonomous Vehicles Index. There’s also the Direxion Daily Robotics, Artificial Intelligence & Automation Index Bull 2X Shares (Ticker: UBOT), which seeks daily investment results, before fees and expenses, of 200% of the performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index.
Neither Rafferty nor the Direxion Daily Semiconductor Bull 3X Shares and the Direxion Daily Semiconductor Bear 3X Shares (the “Financial Products”) are sponsored, endorsed, sold or promoted by Interactive Data Pricing and Reference Data, LLC or its affiliates (“Vendor”). Vendor makes no representation or warranty regarding the advisability of investing in securities generally, in the Financial Products particularly, or the ability of the ICE Semiconductor Index to track general financial market performance. VENDOR MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE ICE INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL VENDOR HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
ICE Semiconductor Index (ICESEMI) is a rules-based, modified float-adjusted market capitalization-weighted index that tracks the performance of the thirty largest U.S. listed semiconductor companies. One cannot directly invest in an index.
The Indxx US Electric and Autonomous Vehicles Index is designed to track the performance of electric and autonomous vehicles companies. The Index Provider defines electric and autonomous vehicles companies as those companies that derive at least 50% of their revenues from the following activities (or “sub-themes”): Manufacturers – companies that manufacture and sell electric or autonomous vehicles; Enablers – companies that build infrastructure or create technology for electric or autonomous vehicles, such as charging docks and batteries; and Software and Technology Services – companies that engage in the development of software and technology for electric or autonomous vehicles.
The Indxx Global Robotics and Artificial Intelligence Thematic Index (IBOTZNT) is designed to provide exposure to exchange-listed companies in developed markets that are expected to benefit from the adoption and utilization of robotics and/or artificial intelligence, including companies involved in developing industrial robots and production systems, automated inventory management, unmanned vehicles, voice/image/text recognition, and medical robots or robotic instruments, as defined by the index provider, Indxx. Companies must have a minimum market capitalization of $100 million and a minimum average daily turnover for the last 6 months greater than, or equal to, $2 million in order to be eligible for inclusion in the Index. One cannot directly invest in an index.
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk, Cash Transaction Risk, Tax Risk, and risks specific to the Semiconductor Industry. Companies that are in the semiconductor industry may be affected by particular economic or market events, which may, in certain circumstances, cause the value of securities of all companies in the semiconductor sector of the market to decrease. Additional risks include, for the Direxion Daily Semiconductor Bull 3X Shares, Daily Index Correlation Risk, and for the Direxion Daily Semiconductor Bear 3X Shares, Daily Inverse Index Correlation Risk, and risks related to Shorting. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.