After the market dominance of AI in 2025, investors are wondering if valuations are currently in line with fundamentals. That said, global markets are entering a critical phase in early 2026 with regard to the AI trade. There are still opportunities to capitalize on, but traders need to know where to look.
Based on a recent Xchange report from Direxion,"Cloud Nine or Memory Lane, the honeymoon period for AI stocks could be ending, which could give way to additional volatility. Heavy hitters in the tech industry have been pouring copious amounts of capital expenditures (CapEx) into AI. However, this is giving way to a more discerning—and volatile—market environment.
As investors pivot from speculative “hype” to a demand for tangible earnings, the report suggests that the AI trade is facing a fundamental reality check.
2 Options to Ponder
Given these shifting dynamics, traders can no longer throw a dart at an AI board full of winners. Today’s market landscape requires a more discerning eye for opportunities. Direxion offered a pair of names to consider in their report—Oracle and Micron. Both names capture AI-focused subthemes in the infrastructure buildout at the hardware and software layers.
To maximize this trading opportunity, consider Oracle with the Direxion Daily ORCL Bull 2X ETF (ORCU) / Direxion Daily Bear 1X ETF (ORCS) pair and Micron using the Direxion Daily MU Bull 2X ETF (MUU ) / Direxion Daily MU Bear 1X ETF (MUD ) duo. These pairs provide the proverbial tools of the trade, allowing for bullish, high-conviction plays while countering with bearish, inverse funds when these stock prices exhibit weakness.
Growing Retail Population
The aforementioned single-stock options underscore the growing retail trading population highlighted in a Direxion white paper created in tandem with Compound Insights and Vanda. The paper explores the active trading boom that took place immediately after the 2020 pandemic, which increased the profile of leveraged-inverse ETFs.
According to the report, leveraged fund volumes have grown at a 29% annual pace since 2020—faster than options and stock market volumes falling within the same timeframe. One of the key drivers of this growth include the rise of the leveraged ETF, which democratized access to 2x and 3x exposure strategies that were once only available to institutional investors. The ETF wrapper, in particular, provided the level of access in an investment vehicle with inherent benefits like cost-efficiency, transparency, and most importantly for traders, intraday flexibility.
“In an environment shaped by rapid headlines, policy shifts, earnings volatility, and macro uncertainty, traders are increasingly turning to these tools to express conviction and respond to fast-moving opportunities,” Direxion noted.
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