The Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL) has suffered a big reversal in the past few months as signs emerged that the artificial intelligence (AI) bubble was starting to fade. The SOXL ETF, which provides a leveraged exposure to the biggest semiconductor companies, retreated to $26.30, down by 62% from its 2024 high.
SOXL ETF slips after NVIDIA earnings
NVIDIA is the second-biggest constituent in the SOXL ETF and is the most important semiconductor company in the world. It has emerged as a crucial part of the technology sector because of its AI chips and the software behind it known as CUDA.
NVIDIA published strong results on Wednesday that demonstrated that it was doing well as demand remained elevated. The company’s revenues jumped to $39.3 billion in the third quarter, higher than the expected $38.5 billion. It was a 78% increase from what it made a year earlier, bringing its annual revenue figure to $130 billion.
The challenge, however, is that the company issued a softer-than-expected forward guidance. It now expects that sales will be $43 billion in the third quarter, lower than the expected $43.2 billion. Some analysts were expecting the guidance to be about $48 billion.
The other issue is that the company’s revenue and earnings growth happened at the lowest margin since 2022. As such, while these results were strong, they signal that the company’s business will continue growing at a lower rate this year.
There are concerns about the return on investment (RoI) on AI investments by companies like Microsoft, Xai, Google, and Amazon. While the valuation of companies like OpenAI and xAI has soared, it is unclear whether they are making a lot of money. Microsoft’s revenues have not soared because of its Copilot offerings.
Other SOXL companies may slow
The latest NVIDIA earnings mean that the other large players in the SOXL ETF may struggle too. AMD, the third-biggest constituent, has dropped sharply in the past few months. It has formed a death cross as the 50-day and 200-day moving averages crossed each, signaling more weakness ahead.
AMD’s recent earnings showed that its revenues rose by 12% YoY to $7.65 billion, while its net income dropped to $482 million.
Broadcom, the biggest company in the SOXL ETF has also retreated in the past few weeks. It dropped by about 15% from its highest level this year to the current $212.
The other big names in the SOXL Fund like Texas Instruments, Lam Research, and Marvell Technologies have slipped lately.
Semiconductor stocks lack a clear catalyst
The main concern for the SOXL ETF is that the sector lacks a clear catalyst for now. The AI industry has been the biggest area of business in the past three years. With its growth slowing, the sector may struggle to get another narrative.
For starters, the SOXL is a fund that provides investors with access to the semiconductor industry. Unlike other generic funds, the SOXL fund maximizes returns by adding a 3x leverage to its daily returns.
SOXL ETF technical analysis
SOXL ETF chart by TradingView
The daily chart shows that the SOXL share price has retreated in the past few months. It has dropped from last year’s high of $70 to the current $26.25. The stock has moved below the 50-day and 200-day Exponential Moving Averages (EMA), a sign that bears are in control.
The SOXL ETF stock has also dropped below the 61.8% Fibonacci Retracement level. It has also formed a symmetrical triangle pattern whose two lines are about to converge. Therefore, the stock will likely have a strong bearish breakdown, with the next point to watch being at $19.65, the 78.6% retracement point.
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