Semiconductor Slump Puts Direxion's NVDA-Centered NVDU And NVDD ETFs In Focus

While artificial intelligence has been one of the hottest topics in the business ecosystem, it's not without its challenges. Six months following its high-profile announcement at the White House, the $500 billion Stargate project — a joint venture between OpenAI and SoftBank — has encountered significant delays and scaled-back ambitions. On paper, the initiative was supposed to bolster AI-based infrastructure in the U.S. With the effort struggling, semiconductor companies — including mighty Nvidia Corp (NASDAQ:NVDA) — sold off.

Following the Stargate news, NVDA stock dropped 2.54%, bringing its trailing five-day performance down to a loss of 2.35%. Still, investors aren't exactly in panic mode. Since the start of the year, NVDA has gained more than 24% — and that's despite the security encountering a bearish trend channel heading into late April. The recovery in NVDA demonstrates that investors tend to view dips as discounts.

Another factor to consider when looking at Nvidia stock is the underlying generative AI market. To be blunt, the Stargate issue represents a reminder that companies need to be prudent regarding their investments in machine learning. At the same time, the total addressable market is simply massive. According to Morgan Stanley, generative AI revenue could surpass $1.1 trillion by 2028.

Finally, Nvidia continues to beat analysts' estimates during its earnings disclosures. In the first quarter of fiscal 2026, the company posted earnings per share of 96 cents on revenue of $44.06 billion, with both metrics exceeding consensus targets. In fact, the last time Nvidia missed on both the top and bottom lines was in the second quarter of fiscal 2023.

While NVDA stock seems impregnable by the bears, it's not without concerns. On the financial side, certain performances seem to be decelerating, raising concerns about meeting investor expectations. For example, in the most recent quarter, Nvidia's revenue haul represented a 1.88% surprise against analysts' expectations. That was noticeably lower than results seen in prior quarters.

More fundamentally, Stargate's disappointing fizzle reflects a broader concern: the furor over AI could be more hype than substance. Despite the raging headlines, only 5% of U.S. firms are actually using generative AI. If actual orders don't meet expectations, there could be a mismatch between supply and demand, which may have a negative impact on the value of NVDA stock.

The Direxion ETFs: Thanks to surprisingly viable arguments on both sides of the aisle, speculators interested in short-term positions may consider Direxion's specialized exchange-traded funds. For optimistic traders, the Direxion Daily NVDA Bull 2X Shares (NASDAQ:NVDU) seeks the daily investment results of 200% of the performance of NVDA stock. For the pessimists, the Direxion Daily NVDA Bear 1X Shares (NASDAQ:NVDD) seeks 100% of the inverse performance of the namesake security.

A core attribute undergirding Direxion ETFs is convenience. Usually, market participants interested in leveraged or short positions must resort to the options market. However, financial derivatives carry complexities that may not be suitable for all market participants. In contrast, Direxion ETFs can be bought and sold much like any other publicly traded security, thus greatly mitigating the learning curve.

Still, prospective investors must be aware of these funds' unique risk profile. First, leveraged and inverse ETFs typically tend to incur greater volatility than funds tracking benchmark indices, such as the Nasdaq Composite index. Second, Direxion ETFs are designed for exposure lasting no longer than one day. Holding these ETFs longer than recommended may expose investors to value decay due to the daily compounding phenomenon.

The NVDU ETF: Since the start of the year, the NVDU ETF has gained over 17%, which is below the namesake stock due to the severe compounding of prior volatility.

• Although holding a leveraged fund can be risky, the near-term performance may be robust, as NVDU's trailing-month return of over 31% demonstrates.
• Right now, the price action stands firmly above its 50- and 200-day moving averages. Still, the recent hiccup was conspicuous, warranting caution among the bulls.

The NVDD ETF: Unsurprisingly given the circumstances, the NVDD ETF slipped 32% since the January opener, reflecting the consequences of betting against Nvidia bulls.

• In contrast to its bullish counterpart, the NVDD ETF is well below its 50 and 200 DMAs, along with the 20-day exponential moving average.
• With the Stargate blip, the bears have pushed into NVDD near the psychologically important $4 level, raising the possibility of a turnaround effort.

Featured image by Jacek Abramowicz on Pixabay.