Leveraging Trades On Semiconductors With SOXL And SOXS

Since its inception, the semiconductor industry has undergone growth and transformation, with a significant impact on the current technological landscape. The semiconductor value chain is a complex network of companies and processes involved in designing, manufacturing, testing, packaging and distributing semiconductor components. It encompasses stages and stakeholders, each crucial in bringing semiconductor products from concept to end-users.

Increasing Demand For Chips

While Nvidia Corporation NVDA has possibly become the most familiar company in the semiconductor industry, other stakeholders are also important. Recently, the firm reported quarterly revenue of $30.0 billion, up 15% from Q1 and up 122% from a year ago. Furthermore, the firm recorded quarterly data center revenue of $26.3 billion, up 16% from Q1 and 154% from the previous year. 

Nvidia's figures can arguably be partially attributed to the growing demand for chips and the tailwind propelling the semiconductor industry’s outcomes. As announced by the Semiconductor Industry Association (SIA), global semiconductor industry sales hit $51.3 billion during July 2024, an increase of 18.7% compared to the July 2023 total of $43.2 billion and 2.7% more than the June 2024 total of $50.0 billion. As noted in the SIA's announcement, regionally, year-to-year sales were up in the Americas (40.1%), China (19.5%) and Asia Pacific/All Other (16.7%), highlighting the depth of demand globally.

How Regional Demand Is Shaping Semiconductor Development

It is no secret that global economies, particularly the U.S. and China, are engaged in a semiconductor development arms race. The U.S. CHIPS (Creating Helpful Incentives to Produce Semiconductors for America) Act was enacted in 2022 to lure microchip manufacturing back to the United States after several decades of individual companies offshoring the technology. The CHIPS Act aims to bolster domestic semiconductor manufacturing and research and weaken the advancement of foreign entities, namely China. 

However, China has built up its domestic capabilities in recent years and is producing high-performance, energy-efficient chips. While some industry observers estimate China's semiconductor development to be approximately five years behind global leaders, the advancements that have been made are overcoming the difficulties caused by U.S. technological policy actions.

Other nations, namely India and Saudi Arabia, are also adopting the development of domestic semiconductor capabilities. Recently, Prime Minister Modi met with various global leaders in the semiconductor industry to discuss the democratization of the technology’s development and how his nation can be a trusted partner in a diversified semiconductor supply chain. 

Against the backdrop of the current U.S.-China relationship on semiconductor development, India is attempting to capitalize on the current opportunity and increase its importance in the global semiconductor value chain. In a similar spirit, under its Vision 2030 initiative, Saudi Arabia aims to invest heavily in developing local semiconductor manufacturing capabilities. The goal is to reduce dependency and enhance economic diversification.

Trading Short-term Leveraged Exposure To The Semiconductor Industry With Direxion

For traders looking to gain comprehensive exposure to the emerging market economy, Direxion's Daily Semiconductor Bull SOXL and Bear 3X SOXS Shares offer exposure to the thirty largest U.S.-listed semiconductor companies. These Leveraged and Inverse ETFs are designed to seek daily performance, before fees and expenses, of 300% or 300% of the opposite, respectively, of the performance of the NYSE Semiconductor Index*, enabling traders who love risk to bet on the index. It is important to note that these solutions are intended to take advantage of short-term trends, and positions should be monitored often. 

Whether bullish or bearish on the semiconductor industry, these ETFs can help traders engage with the ebb and flow of the industry's growth patterns. However, it’s crucial to approach these leveraged products with a clear understanding of their risks. While the amplified exposure can translate to significant gains, it can also lead to substantial losses. 

Featured photo by BoliviaInteligente on Unsplash.

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NYSE 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.

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, Passive Investment and Index Performance 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, Shorting or Inverse Risk and Daily Inverse Index Correlation Risk.  Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

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