A Digitalization Showdown Offers Traders A Potential Opportunity In Direxion's AI And Big Data Bull And Bear ETFs

NVIDIA Corp. NVDA and Advanced Micro Devices, Inc. AMD – both heavyweights in the realm of artificial intelligence – saw their market value rise significantly during the midweek session. NVDA stock jumped just over 8% against Tuesday's close, while AMD came shy of hitting 5% up.

According to a Reuters report, the U.S. government is mulling over whether it should give Nvidia the green light to export its advanced graphics processors – the powerful semiconductors undergirding myriad AI platforms – to Saudi Arabia. Doing so would represent a pivot from the Biden administration's curbs on exports of these advanced chips, a move ultimately meant to counter China's digital ambitions.

Allowing the shipments to go ahead would represent a much-needed boost for NVDA and its ilk. Although both Nvidia and Advanced Micro have enjoyed strong returns over the past year, in the past few months, forward momentum for both enterprises has conspicuously slowed.

Adding to the positive sentiment on Wednesday was news that ChatGPT parent OpenAI may be considering an equity financing raise of $6.5 billion. Potential investors include Nvidia, along with tech juggernauts Microsoft Corp MSFT and Apple Inc. AAPL. With large language models becoming increasingly popular, greater interest in OpenAI may translate to growth acceleration for NVDA stock.

Nevertheless, not every expert is convinced that the innovation ecosystem will continue marching higher without serious challenges. While certain benchmark players have enjoyed significant gains, companies that primarily focus on elements outside AI – such as traditional software firms – have struggled for traction.

What's more, enterprises like workflow management firm Asana Inc. ASAN – which utilizes both AI and big data – have admitted to overhiring and overspending during the early days of the COVID-19 pandemic. The market is now adjusting to current realities, which could potentially put the elevated valuations of certain businesses at risk.

The ETFs: Still, the environment for traders looking to play the trend is a compelling one for financial services firm Direxion. As the provider of myriad leveraged and inverse exchange-traded funds, the company offers traders a convenient way to extract daily profits out of popular stocks and specific sectors. Those bullish on machine intelligence may consider the Direxion Daily AI and Big Data Bull 2X Shares AIBU.

On the other hand, those skeptical about AI and the current valuations of certain tech players may opt for the Direxion Daily AI and Big Data Bear 2X Shares AIBD. Either way, both ETFs track the daily investment results – 200% in the case of AIBU and 200% of the inverse in the case of AIBD – of the Solactive US AI & Big Data Index.

Investors considering either the AIBU or AIBD should be aware that these funds are designed for exposure lasting no longer than one day (session). Due to the daily compounding effect of volatility, the actual performance of leveraged funds held over the long term can erode significantly from their expected performance.

The AIBU ETF: While the AI and Big Data fund enjoyed an auspicious start during the first half of the year, the second half so far has been met with a higher magnitude of resistance.

Speaking of resistance, while AIBU was able to reverse course from its doldrums earlier this month, it's hitting a ceiling at around $27, emblematic of the recent momentum issues stymieing NVDA stock.
Even if AIBU crosses above the $27 resistance line, it must also breach the level hanging just below $29. What's more, the bears have previously troubled the bulls at the $28 line, suggesting significant work to come.

The AIBD ETF: In a reversal of sentiment, the AIBD ETF struggled during the first half of 2024. However, in the second half, the inverse leveraged fund appears to be finding its footing.

As expected, AIBD did not have a great session on Wednesday. However, the one positive is that the $22 support line that it's straddling appears to be a strong one.
Significant volume (relatively speaking) entered the inverse ETF earlier this month, suggesting brewing interest in betting against the popular AI theme.