Apple: Tempting or Overripe?
Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. Investing in the Funds is not equivalent to investing directly in AAPL.
Since the launch of the first iPhone, Apple, Inc. (Ticker: AAPL) has grown to become one of the top five companies in the world by market cap. Over the past two decades, the firm has ushered in the smartphone era and created a robust ecosystem of services and products. However, external forces are emerging that could potentially change the operating landscape for Apple.
Regulation Risk
Apple and other major tech companies are facing new regulations from the U.S. and European governments. In Europe, the Digital Markets Act (DMA) aims to create a fairer digital economy by designating large online companies like Apple, Alphabet, Meta Platforms, Microsoft, and Amazon as market gatekeepers. The DMA imposes strict requirements to prevent anticompetitive behavior. The DMA is expected to impact Apple's App Store, which serves 2.2 billion active iPhone users worldwide (Apple Insider). Under the new rules, third-party app stores will be allowed on iOS for the first time, breaking Apple's monopoly on app distribution. This change will enable users to download apps that may not comply with App Store guidelines. Additionally, there will be reduced commissions for iOS apps. App Store now charges a reduced commission of either 10% or 17% on transactions for digital goods and services, down from the previous 30% fee.
In the U.S., the Department of Justice (DOJ) recently launched an antitrust lawsuit against Apple. The DOJ alleges that Apple blocks “super” apps, suppresses mobile cloud streaming services, blocks cross-platform messaging apps, limits third-party digital wallets and even limits how well third-party smartwatches work on its platforms. This is the third time that the DOJ has sued Apple for antitrust violations in the past 14 years. The question is, Will these new regulations cause short-term fluctuations in the stock, or not?
Lots of Shine Remains
Despite the rising regulatory hurdles that Apple, Inc. is facing, its business operations remain formidable. For its first fiscal quarter of 2024, ending December 30th, 2023, the company posted quarterly revenue of $119.6 billion, up 2% year over year. Though the iPhone remains the firm’s dominant product offering, sales from the firm’s services category have increased on a year-over-year basis. While Apple continues to search for its ‘next big thing,’ it also continues to provide new and compelling offerings, such as the Vision Pro headset, which has garnered some marketplace appeal since its launch. In looking to the future, it has been reported Apple is exploring personal robotics as its next frontier after the firm nixed the development of long-rumored electric vehicles.
At present, Apple remains a strong cash-generating business that has continued to reward investors immensely. As noted in the firm’s press release on Q1 results, Apple CFO Luca Maestri stated, “During the quarter, we generated nearly $40 billion of operating cash flow, and returned almost $27 billion to our shareholders. We are confident in our future, and continue to make significant investments across our business to support our long-term growth plans.”
Gaining Comprehensive Exposure To AAPL With Direxion
For traders looking to gain leveraged exposure to Apple, Inc., the Direxion Daily AAPL Bull 2X Shares (Ticker: AAPU) and Direxion Daily AAPL Bear 1X Shares (Ticker: AAPD) offer enhanced, pure-play exposure to the firm. These Daily Leveraged and Inverse ETFs are designed to emulate the daily performance of Apple, Inc., enabling traders to gain exposure to the firm’s equity movements. AAPU seeks daily investment results, before fees and expenses, of 200% of the performance of Apple, Inc. common stock, while AAPD seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Apple, Inc. common stock.
Whether bullish or bearish on Apple's current actions and future prospects, these ETFs present an opportunity to easily engage with the corporation’s short-term trading 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. These ETFs are best suited for those who can actively manage the inherent risks of leverage and are looking to capitalize on short-term trends occurring with the firm.
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
The Funds have derived all disclosures contained in this document regarding Apple Inc. from publicly available documents. In connection with the offering of each Fund’s securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Apple Inc. is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Apple Inc. have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Apple Inc. could affect the value of a Fund’s investments with respect to Apple Inc. and therefore the value of the Funds.
Technology Sector Risk — The market prices of technology related securities tend to exhibit a greater degree of market risk and sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices. Technology securities may be affected by intense competition, obsolescence of existing technology, general economic conditions and government regulation and may have limited product lines, markets, financial resources or personnel. Technology companies may experience dramatic and often unpredictable changes in growth rates and competition for qualified personnel. These companies are also heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely impact a company’s profitability.
Apple Inc. Investing Risk — In addition to the risks associated with companies in the technology sector, Apple Inc. faces risks related to market conditions, market disruptions, competition, managing the frequent introductions and transitions of products and services; as well as the outsourced manufacturing and logistical services provided by partners. Issuer-specific attributes may cause an investment held by a Fund to be more volatile than the market generally. The value of an individual security or particular type of security may be more volatile than the market as a whole and may perform differently from the value of the market as a whole.
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 a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund's investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund's other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Apple Inc. Investing Risk, Market Risk, Industry Concentration Risk, Indirect Investment Risk, Cash Transaction Risk, and risks specific to the technology sector. Additional risks include, for the Direxion Daily AAPL Bull 2X Shares, Leverage Risk and Daily Correlation Risk, and for the Direxion Daily AAPL Bear 1X Shares, Shorting or Inverse Risk as well as Daily Inverse Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.
Distributor: Foreside Fund Services, LLC.