Is Nvidia About to Drop the Mic or Just Drop?
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Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. 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 stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. Investing in the Funds is not equivalent to investing directly in NVDA.
Markets have been clobbered in recent weeks—and even high-flying Nvidia couldn’t escape the carnage. The benchmark S&P 500 Index* peaked around 5,667 on July 16, then tumbled almost 10% by August 5. NVDA, which touched $140 in mid-June after its recent stock split, traded just over $90 as equities tanked. That’s a stunning decline of 36% for the maker of chips essential to the artificial intelligence (AI) revolution. Other bellwether chip stocks like Broadcom, Advanced Micro Devices, and Taiwan Semiconductor have also come under pressure.
Throughout history, the big winners like Amazon have seen several massive drawdowns along the way. So Nvidia’s fall doesn’t necessarily mean it’s all downhill from here (and the stock is still up over 100% for the year, which helps put this rocky patch into context). That said, with concerns that NVDA may be the current version of 2000’s Cisco Systems (i.e., a bursting bubble), traders will be watchful to see how the stock fares for the rest of the summer and into September. It’s possible we just chop around in a range for a bit, offering solid swing trading opportunities but no massive move in either direction.
Without a doubt, Nvidia’s upcoming earnings report expected to cross on August 28 will be a key catalyst for chip stocks and the broader technology sector.
Nvidia’s quarter results "may hold the fate of the Big Tech vs. rotation trade,” Barclays strategists predicted, according to an Investing.com report.
“While AI-related capex from the Tech giants has generally been strong, investors are starting to question the high spending given actual AI revenues are likely to take longer to materialize,” Barclays noted.
Solid numbers from Nvidia could go a long way to soothing fears that this is a busted stock, while weak numbers will give the bears confidence that the company can no longer live up to the hype.
From a technical standpoint, it’s clear that NVDA’s 50-day moving average* is acting as resistance. Ever since slicing through it in late July, the stock has been unable to recover this widely followed trend measure.
Below is a daily chart of Nvidia Corporation as of August 8.
Source: StockCharts.com, August 8, 2024.
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.
What to Look for in Nvidia’s Earnings
Jensen Huang’s firm is the market general among the semis with the ability to help pull the sector out of this funk or lead it to more drawdowns.
Here are some catalysts for traders to monitor both in NVDA’s results and the earnings conference call that follows:
- Profits: The consensus estimate is for earnings of $0.59 per share*. Last quarter, NVDA beat expectations, earning $0.58 vs. an expected $0.51. That beat led to the stock roaring to all-time highs.
- Margins: Nvidia is insanely profitable. Case in point: The company’s gross margins in Q1 were 78.4%, vs. 64.6% in the same quarter last year. Bulls want to see this number stay in nosebleed territory, while bears will be hoping for margins to be squeezed.
- Forward Guidance: Traders will be keen to hear insights from management about how the rest of 2024 is shaping up. In addition, bulls and bears alike will want to hear some clarification regarding reports that production and shipments of the next-generation Blackwell chip have been delayed due to a design flaw.
NVDA Bull or Bear, Here’s How to Play It
Direxion offers two Single Stock Daily Leveraged & Inverse ETFs that give traders the opportunity to make leveraged bets on Nvidia. The Direxion Daily NVDA Bull 2X Shares (Ticker: NVDU) seeks daily investment results, before fees and expenses, of 200% of common shares of NVDA. Meanwhile, traders itching to bet against the stock can do so using the Direxion Daily NVDA Bear 1X Shares (Ticker: NVDD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of NVDA common shares.
Trading the Broader Semiconductor Sector
Traders looking to make an aggressive bet on the wider chipmaker sector can do so as well. The Direxion Daily Semiconductor Bull 3X Shares (Ticker: SOXL) which seeks daily investment results, before fees and expenses, of 300% of the performance of the NYSE Semiconductor Index*. Those looking to potentially profit from further weakness in the semis can do so with the Direxion Daily Semiconductor Bear 3X Shares (Ticker: SOXS). This leveraged ETF seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the NYSE Semiconductor Index.
*Definitions and Index Descriptions
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 direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
The NYSE Semiconductor Index (ICESEMIT) 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 invest directly in an index.
The Funds have derived all disclosures contained in this document regarding NVIDIA Corporation from publicly available documents. In connection with the offering of each Fund’s securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding NVIDIA Corporation is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of NVIDIA Corporation have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning NVIDIA Corporation could affect the value of a Fund’s investments with respect to NVIDIA Corporation and therefore the value of the Funds.
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