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Can Nvidia Propel to New Highs After a Record Run?

XChange NewsletterApril 16, 2024 | 2 min read
bird's eye view of four stacks of AI chips, on a black background

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 NVDA.

Is Nvidia the Kingmaker of AI?

As the investing world comes to grips with the widespread economic implications of artificial intelligence (AI), Nvidia continues to present itself as the leader in this transition. The company continues to churn out chips needed for AI systems, but that’s not the only angle it’s playing.

Nvidia is also keenly positioned in the data center market, which is already valuated at over $1 trillion. And it just so happens that many of the chips they manufacture are needed to maintain these data centers, which puts Nvidia in a nice circular economic system.

Moreover, these systems need to be reequipped through a full upgrade cycle ever 4-5 years. This means strong recurring revenue down the line. Whether or not this is already priced into the story is a matter up for debate.

Traders that think Nvidia can continue to deliver for investors near-term may find an opportunity with Direxion’s Daily NVDA Bull 2X Shares (Ticker: NVDU), which seeks daily investment results, before fees and expenses, of 200% of the performance of Nvidia Corporation common stock.

Below is a daily chart of NVDA as of April 4, 2024.

Daily chart of NVDA, as of 4/4/2024


Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.

The performance data quoted represents past performance. Past performance does not guarantee future results.

The slanted blue line represents an uptrend. An uptrend describes the price movement of a financial asset when the overall direction is upward.

What if All Future Growth is Priced In?

The big risk shares of Nvidia face in the near-term is the possibility that all of this future revenue and earnings growth are already priced in. Granted, the semiconductor industry had a mini contraction a couple years ago, and Nvidia emerged from the downturn as a leader in the space.

The company’s next earnings report is on May 22. If for some reason, results come in below estimates, it could lead to a corrective decline in this stock. Moreover, we have to consider the prospects of an economic contraction due to concerns of another inflationary wave coming over markets.

Last time inflation* expectations surged in 2021 and 2022, it was not a good time for chip and tech stocks. Keep an eye on the upcoming inflation report which is set to be released on May 15. If it comes in hot, it could be a warning sign for the broader tech sector.

Traders that think downside risks are mounting in Nvidia may find an opportunity with Direxion’s Daily NVDA Bear 1X Shares (Ticker: NVDD), which seeks daily investment results, before fees and expenses, of the inverse performance of Nvidia Corporation common stock.

*Definitions and Index Descriptions

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 A Fund’s prospectus and summary prospectus should be read carefully before investing.

The Funds have derived all disclosures contained in this document regarding NVIDIA Corporation 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 NVIDIA Corporation 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 NVIDIA Corporation have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning NVIDIA Corporation could affect the value of a Fund’s investments with respect to NVIDIA Corporation and therefore the value of the Funds.

Semiconductor Industry Risk – Semiconductor companies may face intense competition, both domestically and internationally, and such competition may have an adverse effect on such companies’ profit margins. Semiconductor companies may have limited product lines, markets, financial resources or personnel. Companies in the semiconductor industry may have products that face obsolescence due to rapid technological developments and frequent new product introduction, unpredictable changes in growth rates and competition for qualified personnel.

NVIDIA Corporation Investing Risk — NVIDIA Corporation faces risks associated with meeting the evolving needs of its large markets – gaming, data center, professional visualization and automotive – and identifying new products, services and technologies; competition in its current and target markets; changes in customer demand; supply chain issues; manufacturing delays; potential significant mismatches between supply and demand giving rise to product shortages or excessive inventory; the dependence on third-parties and their technology to manufacture, assemble, test, package or design its products which reduces control over product quantity and quality, manufacturing yields, development, enhancement and product delivery schedules; significant product defects; international operations, including adverse economic conditions; impacts from climate change, including water and energy availability; business investment and acquisitions; system security and data protection breaches, including cyberattacks; business disruptions; a limited number of customers; the ability to attract, retain and motivate executives and key employees; the proper function of its business processes and information systems; its intellectual property; and other regulatory and legal issues.

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, NVIDIA Corporation Investing Risk, Market Risk, Industry Concentration Risk, Cash Transaction Risk, Indirect Investment Risk, and risks specific to the technology sector and semiconductor industry. Additional risks include, for the Direxion Daily NVDA Bull 2X Shares, Leverage Risk and Daily Correlation Risk, and for the Direxion Daily NVDA 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.

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