ETFs
Direxion Daily NVDA Bull And Bear ETFs Let Tech Traders Play Both Sides
NVIDIA Company (NASDAQ:NVDA) probably ranks among the most controversial companies today from an expected capital gains perspective.
There is no doubt about the fundamental relevance underlying NVDA stock. Thanks to the company’s advanced graphics processing units (GPUs), Nvidia has become one of the biggest brands in the artificial intelligence ecosystem. Yet with stocks up more than 170% year to date, many have understandably developed valuation concerns.
At first glance, circumstances may not appear entirely favorable to NVDA stock. Currently, the market values its shares at 77.2 times earnings over the past year, while relative to revenue, NVDA reaches more than 41 times. However, many optimists also point out that by the end of the current fiscal year, earnings per share could reach $2.53, an increase of 109% from the previous year. Additionally, sales could reach $112.36 billion, up nearly 98% year-over-year.
On the other hand, investors should also consider the cost of digital intelligence. Without improved energy efficiency, artificial intelligence (AI) data centers could potentially meet a quarter of the United States’ electricity needs by the end of the decade, according to René Haas, CEO of Arm Holdings. Additionally, as researchers at the University of Southern California have pointed out, AI makes mistakes, leading to uncomfortable productivity and even legal problems.
With so much momentum present in Nvidia’s narrative, traders may want to consider two Direxion exchange-traded funds: Direxion Daily NVDA Bull 2X Stock (NASDAQ:NVDU) and Direxion Daily NVDA Bear 1X Stock (NASDAQ:NVDD). The old ETF applies 2X leverage to NVDA stock, which is suitable for those who are extremely bullish on the semiconductor specialist. The latter fund attempts to grow in inverse proportion if NVDA stumbles.
Both products represent high-risk bets that should only be deployed in a short-term framework. Whether leveraged funds or inverse ETFs, the cumulative effect risk – in which the daily reset of leverage or inverse exposure (in the case of NVDD) – may potentially separate the expected return of the fund from the actual return.
The NVDU graph: Since the increase on May 23 following Nvidia’s dazzling results for its first quarter, the NVDU has progressed as expected. Over the past month, NVDA stock has gained 42.6% in net worth. In contrast, NVDU increased by almost 98% during the same period, beating expectations.
- As of Friday’s close, NVDU reached $129.60, up nearly 29% from its 20-day exponential moving average (EMA). Additionally, the 2X Leveraged Fund is up 74% from its 50-day moving average (DMA), which is a common barometer of short-term market health.
- One potential risk indicator to consider is volume trend. Between May 23 and June 14, the volume of acquisitions decreased while the price movement increased. Ideally, volume should confirm a rally, not contradict it.
The NVDD graph: Critics who believe NVDA stock is overvalued have yet to see their thesis proven in the market, with NVDD down more than 30% in the past month. Still, the inverse ETF’s heavily discounted price could attract contrarian speculators.
- At the moment, the “bullish” argument in favor of NVDD – which is effectively bearish against NVDA – seems difficult to swallow, with the inverse fund down 15% from its 20-day EMA and 29, 3% from its 50 DMA.
- However, it is interesting to note that volume in the June 14 session was down almost 23% from the previous session. This may imply that the bearish pressure against NVDD is fading, which could set the stage for a possible reversal in the near term.
Featured photo by Jacek Abramowicz from Pixabay.