The artificial intelligence (AI) giants, NVIDIA Corp (NVDA) and Advanced Micro Devices, Inc (AMD), experienced a significant surge in their market value during the midweek trading session. NVDA stock jumped over 8% from Tuesday’s close, while AMD neared a 5% increase. The bullish sentiment was fueled by a promising development: the US government is considering allowing Nvidia to export its advanced graphics processors, crucial components for powering AI platforms, to Saudi Arabia. This potential move represents a shift from the Biden administration’s previous restrictions on such exports, aimed at curbing China’s digital ambitions. If approved, this would provide a much-needed boost for NVDA and other AI chip manufacturers.
Despite the recent upswing, both Nvidia and AMD have experienced a slowdown in their forward momentum over the past few months. Adding to the positive sentiment on Wednesday was the news that OpenAI, the parent company behind ChatGPT, is considering an equity financing raise of $6.5 billion. Potential investors include Nvidia, along with tech titans Microsoft Corp (MSFT) and Apple Inc (AAPL). The growing popularity of large language models like ChatGPT has sparked increased interest in OpenAI, potentially translating into accelerated growth for NVDA stock.
However, not all experts are convinced that the AI ecosystem will continue its upward trajectory without facing significant challenges. While some prominent players have enjoyed substantial gains, companies primarily focused on areas outside AI, like traditional software firms, have struggled to gain traction. Additionally, companies like workflow management firm Asana Inc (ASAN), which utilize 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 jeopardize the elevated valuations of certain businesses.
For traders looking to capitalize on the AI trend, financial services firm Direxion offers a compelling environment through its range of leveraged and inverse exchange-traded funds (ETFs). The Direxion Daily AI and Big Data Bull 2X Shares (AIBU) provides traders a way to profit from the daily performance of popular AI stocks and sectors. Conversely, the Direxion Daily AI and Big Data Bear 2X Shares (AIBD) offers an opportunity to capitalize on skepticism towards AI and the current valuations of certain tech companies. Both ETFs track the daily investment results of the Solactive US AI & Big Data Index, with AIBU offering 200% exposure and AIBD providing 200% inverse exposure.
Investors considering either AIBU or AIBD should be aware that these funds are designed for short-term exposure, ideally not exceeding a single trading session. Due to the daily compounding effect of volatility, the long-term performance of leveraged funds can significantly deviate from their expected returns.
The AIBU ETF, which had a strong start in the first half of the year, has encountered more resistance in the second half. While AIBU managed to recover from a slump earlier this month, it is facing a ceiling around $27, mirroring the recent momentum issues affecting NVDA stock. To maintain its upward trajectory, AIBU needs to surpass both the $27 resistance and the level just below $29. Moreover, the bears have previously challenged the bulls at the $28 mark, suggesting further hurdles ahead.
In a reversal of fortunes, the AIBD ETF struggled during the first half of 2024. However, the inverse leveraged fund appears to be gaining traction in the second half. As expected, AIBD didn’t perform well on Wednesday. However, a positive sign is the strong support it is receiving around the $22 mark. Significant volume entered the inverse ETF earlier this month, suggesting growing interest in betting against the popular AI theme.
