Will Nvidia’s AI Innovation Drive a Rebound or Signal a Downturn?
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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.
The meteoric rise in the price of NVIDIA Corporation (Ticker: NVDA) over the past couple of years has not only captivated the trading community, but also the broader public. From the start of the year, the stock rose over 180% before beginning a pullback in June. Is this the start of further woes to the downside, or merely a buy the dip opportunity?
Catalysts for a Rebound
Nvidia continues to hold the reigns in terms of producing AI-focused graphics processing units (GPUs) that are used in high-compute data centers. In fact, some analysts have gone has far to say Nvidia virtually has a monopoly in space.
Demand for these chips continue to exceed supply, which should help drive revenue and earnings growth into the foreseeable future. The company is maintaining its innovative status, and is already moving to release its next-generation AI-GPU architecture, known as Blackwell, later this year.
These are all sufficient catalyst to drive a rebound in this stock, but recently, there was a 10-for-1 stock split in Nvidia. This is more of a psychological play to help attract capital back into the stock, as sometimes, high share prices can deter certain types of traders or investors.
Traders that think Nvidia is due for a rebound may find an opportunity with Direxion’s Daily NVDA Bull 2X Shares (Ticker: NVDU), which seeks daily investment results, before fees and expenses, of 200% of the performance of common shares of NVIDIA Corporation (Ticker: NVDA).
Below is a daily chart of NVDA as of July 11, 2024.
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 slanted blue lines represent an uptrend. An uptrend describes the price movement of a financial asset when the overall direction is upward.
Economic Slowdown Concerns
Market doves have recently received a good bit of news on the inflation front. The June inflation* report came in below estimates, bolstering the probability of a Fed rate cut at some point this year. While this may bring more liquidity into the market, it must also be considered that it could be signaling an imminent economic slowdown.
Recent GDP data has showed that the rate of economic growth is slowing. If the Fed begins stimulus again, the risk of inflation returning will be elevated. Traders should keep an eye on the next inflation report on August 14. The last time inflation ran rampant, the broader tech sector struggled, and if it rears its ugly head again, it may spell trouble for a market-leader like Nvidia.
Direxion’s Daily NVDA Bear 1X Shares (Ticker: NVDD), which seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of common shares of NVIDIA Corporation (Ticker: NVDA) may offer an opportunity to capitalize on another selloff in that situation.
Equity and Sector Alternatives
For traders seeking other concentrated, leveraged equity positions, Direxion offers funds that track names like Apple, Meta, Microsoft, Amazon, and more. Investing in the Funds is not equivalent to investing directly in the underlying stock.
The Direxion Daily AAPL Bull 2X Shares (Ticker: AAPU) seeks daily investment results, before fees and expenses, of 200% of the performance of Apple Inc. common stock, while the Direxion Daily AAPL Bear 1X Shares (Ticker: AAPD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Apple Inc. common stock.
The Direxion Daily META Bull 2X Shares (Ticker: METU) seeks daily investment results, before fees and expenses, of 200% of the performance of Meta Platforms, Inc. common stock, while the Direxion Daily META Bear 1X Shares (Ticker: METD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Meta Platforms, Inc. common stock.
The Direxion Daily MSFT Bull 2X Shares (Ticker: MSFU) seeks daily investment results, before fees and expenses, of 200% of the performance of Microsoft Corporation common stock, while the Direxion Daily MSFT Bear 1X Shares (Ticker: MSFD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of Microsoft Corporation common stock.
The Direxion Daily AMZN Bull 2X Shares (Ticker: AMZU) seeks daily investment results, before fees and expenses, of 200% of the performance of Amazon.com, Inc. common stock, while the Direxion Daily AMZN Bear 1X Shares (Ticker: AMZD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Amazon.com, Inc. common stock.
Traders seeker broader and more leveraged exposure in the equity sector may find an opportunity with Direxion’s Daily S&P 500 Bull 3X Shares (Ticker: SPXL) and Direxion Daily S&P 500 Bear 3X Shares (Ticker: SPXS), which seek daily investment results, before fees and expenses, of 300%, or -300%, respectively, of the performance of the S&P 500 Index*. There’s even the Direxion Daily Technology Bull 3X Shares (Ticker: TECL) and Daily Technology Bear 3X Shares (Ticker: TECS), seek daily investment results, before fees and expenses, of 300%, or -300%, respectively, of the performance of the Technology Select Sector 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 S&P 500® Index (SPXT) is designed to be comprised of stocks that are the 500 leading, large-cap U.S. listed issuers. The securities are selected on the basis of market capitalization, financial viability of the company, sector representation, public float, liquidity and price of a company’s shares outstanding. The Index is a float-adjusted, market capitalization-weighted index.
The Technology Select Sector Index (IXTTR) is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics.
One cannot directly invest 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.
Semiconductor Industry Risk – Semiconductor companies may face intense competition, both domestically and internationally, and such competition may have an adverse effect on such companies’ profit margins. Semiconductor companies may have limited product lines, markets, financial resources or personnel. Companies in the semiconductor industry may have products that face obsolescence due to rapid technological developments and frequent new product introduction, unpredictable changes in growth rates and competition for qualified personnel.
NVIDIA Corporation Investing Risk — NVIDIA Corporation faces risks associated with meeting the evolving needs of its large markets – gaming, data center, professional visualization and automotive – and identifying new products, services and technologies; competition in its current and target markets; changes in customer demand; supply chain issues; manufacturing delays; potential significant mismatches between supply and demand giving rise to product shortages or excessive inventory; the dependence on third-parties and their technology to manufacture, assemble, test, package or design its products which reduces control over product quantity and quality, manufacturing yields, development, enhancement and product delivery schedules; significant product defects; international operations, including adverse economic conditions; impacts from climate change, including water and energy availability; business investment and acquisitions; system security and data protection breaches, including cyberattacks; business disruptions; a limited number of customers; the ability to attract, retain and motivate executives and key employees; the proper function of its business processes and information systems; its intellectual property; and other regulatory and legal issues.
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 a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund's investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund's other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, NVIDIA Corporation Investing Risk, Market Risk, Industry Concentration Risk, Cash Transaction Risk, Indirect Investment Risk, and risks specific to the technology sector and semiconductor industry. Additional risks include, for the Direxion Daily NVDA Bull 2X Shares, Leverage Risk and Daily Correlation Risk, and for the Direxion Daily NVDA Bear 1X Shares, Shorting or Inverse Risk as well as Daily Inverse Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.