Raging AI Debate Could Deliver Fuel For Direxion's Nvidia-Focused Funds NVDU And NVDD

Nvidia Corp NVDA investors have no shortage of reasons to continue bidding up NVDA stock. Primarily, the semiconductor stalwart – known for its advanced graphics processors that undergird artificial intelligence-based platforms and applications – recently posted financial results for the third quarter that handily beat expectations.

Management disclosed earnings per share of 81 cents, outpacing Wall Street's expectation calling for 75 cents. Notably, the tech firm beat its bottom-line target for eight straight quarters. On the top line, Nvidia rang up sales of $35.1 billion, up 94% on a year-over-year basis. This tally also exceeded the consensus view of $33.12 billion.

According to Wedbush Securities Managing Director Dan Ives, the chipmaker's results were a "jaw-dropper." Furthermore, the market expert emphasized the transformative potential of the underlying AI innovation. "This is the fourth revolution playing out in front of our eyes," Ives told CNN.

Not to be outdone, CNBC personality Jim Cramer pounded the table on NVDA stock. "The demand is accelerating because the payoff is so great," the analyst remarked, mentioning Nvidia CEO Jensen Huang's claim that customers earn five dollars for every dollar invested in Nvidia chips.

Still, not every indicator is so positive for NVDA stock. Interestingly, when the tech giant released its Q3 report last week, the initial response wasn't exactly encouraging. Instead, shares slipped during the pre-market hours of the Nov. 21 session. As the company continues to bring home the goods, expectations also rise, possibly presenting challenges.

Conspicuously, on Friday, NVDA stock dropped more than 3%. During the session, options flow data – which focuses exclusively on big block transactions likely placed by institutional or professional investors – saw a significant influx of transactions with apparently bearish implications: both long puts and short calls. This dynamic raises suspicions that some market participants are becoming skeptical about Nvidia.

The Direxion ETFs: For investors that enjoy approaching the equities arena from a tactical view, financial services provider Direxion offers two directionally opposite exchange-traded funds. Optimists in the AI narrative may consider Direxion Daily NVDA Bull 2X Shares NVDU, which seeks daily investment results of 200% of the performance of NVDA stock.

Those who are pessimistic about Nvidia's rally sustaining itself may consider Direxion Daily NVDA Bear 1X Shares NVDD. This ETF attempts to replicate 100% of the inverse performance of NVDA stock. To be clear, both leveraged and inverse ETFs are designed to be held for periods lasting no longer than one day. Exposure beyond this recommended period may lead to valuation erosion due to the daily compounding of leverage.

The NVDU ETF: Since the start of the year, the NVDU ETF has returned traders just over 359%, highlighting the blistering results that Nvidia posted. Still, some kinks in the armor raise questions.

• In the trailing month, NVDU gained just over 1%, potentially revealing investor hesitation regarding the overall AI message.
• The leveraged bull fund is comfortably above its 200-day moving average. However, the price action is narrowing toward its 50 DMA, warranting vigilance.

The NVDD ETF: Unsurprisingly, the NVDD ETF struggled this year, losing almost 73% of its value since the beginning of January. However, it's possible that sentiment may be reversing.

• Friday's price action brought the inverse fund level with its 20-day exponential moving average. Nvidia pessimists now have the 50 DMA within realistic striking distance.
• It's worth noting that NVDD enjoyed a dramatic surge in volume since the middle of November, potentially reflecting a shift in market appetite for AI.

Featured photo by nanadua11 on Pixabay.