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. An investor could lose the full principal value of his or her investment in a single day. Investing in the Funds is not equivalent to investing directly in MSFT.
Microsoft Corporation (Ticker: MSFT) is a chieftain amongst the “Magnificent Seven.” Aside from Apple, it’s been publicly trading the longest of all members of the esteemed club. Microsoft just reported its latest earnings numbers, which exceeded analyst expectations. Does this mean the bull trend of 2023 could continue? Or will broader market pressures weigh on this stock?
The Battle for the AI Throne
Microsoft was one of the first companies to aggressively invest in the artificial intelligence (AI) space, and it appears that this move is beginning to pay dividends. Revenue and earnings continue to grow at a solid pace, as its recent results showed a 13% revenue surge year-over-year.
Despite the promise on the artificial intelligence front, Microsoft’s biggest growth came from its cloud-based segment – Azure. It grew 29% year-over-year, trumping Wall Street’s expectations of 26%. CFO Amy Hood attributed the growth in Azure to higher-than-expected AI consumption.
Keep in mind that the AI-driven Copilot program has already attracted more than 37,000 organizations and more than a million users. Not to mention, it still isn’t openly available to the public.
Traders that see growth continuing in Microsoft may find an opportunity with Direxion’s Daily MSFT Bull 1.5X Shares (Ticker: MSFU), which seeks daily investment results, before fees and expenses, of 150% of the performance of the Microsoft common stock.
Below is a daily chart of MSFT as of October 26, 2023.
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.
Is Microsoft Softening?
Skeptics of Microsoft’s recent earnings report could point to its recent acquisition of Activision Blizzard as an example of reckless spending. Microsoft spent just over half of its cash and equivalents on hand to complete the acquisition. Critics may argue that the capital would have been better off being used for repurchasing shares of its own company.
Compared to the broader market, MSFT is expensive when it comes to valuation too. Its Price/Earnings ratio (P/E)* is over 30, which is notably higher than the S&P 500® Index’s current valuation, which is currently sitting just over 20. Thus, if a recession comes and the stock market pulls back, we could see a notable dip in Microsoft’s stock price.
Traders that think woes in Microsoft are only beginning can consider Direxion’s Daily MSFT Bear 1X Shares (Ticker: MSFD), which seeks daily investment results, before fees and expenses, of the inverse performance of Microsoft common stock.
Further Tech Opportunities
Traders looking for more ways to speculate in the tech sector may find trades in Direxion’s Daily Semiconductor Bull 3X Shares (Ticker: SOXL) or the Daily Semiconductor Bear 3X Shares (Ticker: SOXS). SOXL and SOXS seek daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), respectively, of the performance of the NYSE Semiconductor Index.
Traders looking to bet on artificial intelligence specifically may like the Direxion Daily Robotics, Artificial Intelligence & Automation Index Bull 2X Shares (Ticker: UBOT), which seeks daily investment results, before fees and expenses, of 200% of the performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index*.
There’s even the Direxion Daily Cloud Computing Bull 2X Shares (Ticker: CLDL), which seeks daily investment results, before fees and expenses, of 200% of the performance of the Indxx USA Cloud Computing Index*.
*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 www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
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 index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
NYSE Semiconductor Index (ICESEMI) is a rules-based, modified float-adjusted market capitalization-weighted index that tracks the performance of the thirty largest U.S. listed semiconductor companies.
The Indxx Global Robotics and Artificial Intelligence Thematic Index (IBOTZNT) is designed to provide exposure to exchange-listed companies in developed markets that are expected to benefit from the adoption and utilization of robotics and/or artificial intelligence, including companies involved in developing industrial robots and production systems, automated inventory management, unmanned vehicles, voice/image/text recognition, and medical robots or robotic instruments, as defined by the index provider, Indxx. Companies must have a minimum market capitalization of $100 million and a minimum average daily turnover for the last 6 months greater than, or equal to, $2 million in order to be eligible for inclusion in the Index.
The Cloud Computing Index is provided by Indxx, LLC (the “Index Provider”) and includes domestic companies that deliver cloud computing infrastructure, platforms, or services. The companies included in the Index are involved in the delivery of computing services – servers, storage, databases, networking, software, analytics, and more, over the internet, which is often referred to as the “Cloud." The Index Provider has defined cloud computing to include three themes: Infrastructure as a service; Platform as a service; and Software as a service.
One cannot directly invest in an index.
The Funds have derived all disclosures contained in this document regarding Microsoft 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 Microsoft 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 Microsoft Corporation have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Microsoft Corporation could affect the value of a Fund’s investments with respect to Microsoft Corporation and therefore the value of the Funds.
Neither Rafferty nor the Direxion Daily Semiconductor Bull 3X Shares and the Direxion Daily Semiconductor Bear 3X Shares (the “Financial Products”) are sponsored, endorsed, sold or promoted by Interactive Data Pricing and Reference Data, LLC or its affiliates (“Vendor”). Vendor makes no representation or warranty regarding the advisability of investing in securities generally, in the Financial Products particularly, or the ability of the NYSE Semiconductor Index to track general financial market performance. VENDOR MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL VENDOR HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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.
Microsoft Corporation Investing Risk — Microsoft Corporation faces risks associated with competition in the technology sector and among platform based ecosystems, including its cloud-based services; the evolution of its business, including the development of its new products and acquisitions, joint ventures and strategic alliances; cybersecurity, data privacy and platform abuses; operations, including excessive outages, data losses or disruptions of online services; quality or supply problems; legal, regulatory and litigation risks; and the ability to attract and retain talented employees.
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, Leverage Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Daily Correlation Risk, Microsoft Corporation Investing Risk, Market Risk, Industry Concentration Risk, Cash Transaction Risk, Tax Risk, Indirect Investment Risk, Trading Halt Risk, and risks specific to the technology sector. Additional risks include, for the Direxion Daily MSFT Bear 1X Shares, risks related to Shorting. 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.
Originally published 8 November 2023.
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