Rising Energy Demands From AI And Data Centers Shine Spotlight On Direxion's Daily Uranium Industry Bull 2X Shares (URAA)

Since hitting a multi-year high in late January of this year, the spot price of uranium has generally been declining. Late last year, supply chain concerns stemming from Kazakhstan's state-owned uranium company Kazatomprom sparked fears that production would fall short of initial estimates.

Notably, this dynamic catapulted demand for the critical metal from alternative sources, particularly Canada. Surging prices for nuclear fuel prompted the revival of previously abandoned mining projects. However, the market in recent months began correcting downward as the acute narrative of the Kazakhstani shortfall became priced in.

Still, many experts are bullish on uranium for the long haul thanks to the dramatic rise of advanced technologies such as artificial intelligence (AI) and the proliferation of data centers across the world. As Benzinga's Hayden Buckfire mentioned last month, Big Tech firms racing to develop the most productive AI protocols could endanger environmental security.

One example of the need to foster responsible AI development comes from Alphabet Inc GOOG and its Google AI Overviews. For every search, the program eats up about three watt-hours of electricity. As Buckfire noted, that consumption is 10 times that of a traditional Google search.

Adding to the pressure, the International Energy Agency predicted that electricity consumption from data centers, AI-driven protocols and cryptocurrency-related operations could double by 2026. Overall, the IEA states that the demand profile from these three sectors is "roughly equivalent to the electricity consumption of Japan."

It's no wonder, then, that the IEA declared that AI and energy infrastructure represent the "new power couple." Combined with other consumptive pressures from burgeoning markets like electric vehicles, demand for energy resources will likely only accelerate in the future. Therefore, uranium may play a critical role in the broader infrastructure narrative.

The ETF: Investors seeking to trade the ebb and flow of nuclear fuel prices may consider the Direxion Daily Uranium Industry Bull 2X Shares (URAA). A financial vehicle aiming to provide (before fees and expenses) 200% of the performance of the Solactive United States Uranium and Nuclear Energy ETF Select Index, URAA can provide significant leverage should traders call the market correctly.

However, because of the 2X leverage, the URAA exchange-traded fund should only be utilized by sophisticated market participants. Primarily, leveraged funds feature the risk of value decay because any losses are compounded over time. The more volatility that the ETF may experience, the compounding effect worsens. Therefore, Direxion states that a trader's exposure should be for no longer than one day.

The URAA Chart: As a new product that just launched last month, the URAA ETF does not have much in the way of price history. However, some useful insights can still be extracted from the available data.

• Initially, URAA started proceedings with much fanfare, opening the Jun. 26 session at $25.18 and finishing the day at $25.45. The next day, the uranium fund gapped up to open at $26, ultimately closing at $26.33.
• Notably, the candlestick pattern for the Jun. 27 session featured only a lower wick or shadow; that is, the intraday high of the session matched that of the closing price. This dynamic suggests brewing momentum as the clock ticked down, which is generally an optimistic signal.
• From the Jun. 28 session onward, URAA became noticeably volatile and choppy. However, the bulls still rushed in, with positive momentum so far peaking in the July 11 session. The candlestick pattern on that day resembled a doji star, indicating pensiveness among the optimists.
• Subsequently, the following sessions have resulted in a net downward slide in the URAA as it attempts to find a baseline price. The bears appear to be driving the price down to the $26 level, where some support has been established.

Featured photo by distelAPPArath from Pixabay