The Risks And Rewards Of Betting Big On AI & Big Data

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By Kyle Anthony, Benzinga

The technological landscape is expanding, with artificial intelligence (AI) starting to play a seminal role in the next generation of computing. Many notable companies are establishing or integrating AI capabilities into their technological infrastructure. The proliferation of AI and its potential to bring about work efficiencies and newfound innovations is raising the expectations not only of consumers but also of investors who have exposure to companies within the AI ecosystem.

Chips And Semiconductor Stocks Exceeding Software Stocks

While much of the discussion about AI has centered on the Magnificent Seven – Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), Meta (NASDAQ: META), Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA) and Tesla (NASDAQ: TSLA) – with a particular focus on Nvidia, the AI ecosystem is expansive and reflects differing stakeholders. Essential to AI development are semiconductors or chips; tiny electronic devices designed to enable functions such as processing, storing, sensing and moving data or signals.

AI models employ different types of chips, including memory chips to store large amounts of data and logic chips to process the data. According to Gartner, revenues from AI semiconductors are forecast to be $137 billion by 2027, growing by a five-year compound annual growth rate of 26.5%.

As reported by Market Watch, chips/semiconductor stocks outweighed software stocks in the S&P 500 for the first time in June and had the largest overall sector weighting. The changing of the guard reflects Wall Street’s expectations about the semiconductor sector’s ability to capitalize financially on AI.

On a company level, Nvidia and Advanced Micro Devices, Inc. (NASDAQ: AMD) are chip designers leading innovation by continuing to push the limits of chip performance, enabling more complex and powerful AI applications. Conversely, end-user companies, such as Meta, are making material investments in their AI capabilities as they continue accelerating infrastructure investments to support their AI roadmap.

In Q2 2024, Meta reported total revenues of $36.46 billion and a net income of $12.37 billion, increasing by 27% and 117%; respectively, compared to the same period in 2023. The firm anticipates full-year 2024 capital expenditures will be in the range of $35-40 billion, an increase from their prior range of $30-37 billion, due to their ongoing AI spending.

Growing Concerns Of An AI Bubble

While AI's potential is significant, growing concerns exist about firms' overinvestment and whether it will manifest as profit or be a cash pitfall. As noted by Forbes, there is a growing sentiment that for the millions that have been invested in AI, the returns thus far have been underwhelming – chatbots lacking a clear monetization strategy, cost-cutting approaches such as AI-driven coding and customer service and AI-powered search that occasionally generates inaccuracies. It would seem that the AI return on investment, thus far, isn’t living up to the large capital expenditures being made. Still, many leading big tech firms remain committed to investing in this space.

On the regulatory side, the European Commission recently ratified the European Artificial Intelligence Act (AI Act), the world's first comprehensive regulation on AI. The AI Act aims to ensure that AI developed and used in the European Union (EU) is trustworthy and includes safeguards to protect fundamental rights. The regulation seeks to create a harmonized internal market for AI within the EU, fostering the adoption of this technology and creating a supportive environment for innovation and investment.

Given the intense regulatory focus placed on big tech companies, including Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft in Europe, the implications of the AI Act on their operations have yet to be determined. Still, they have the potential to be material in nature.

Trading AI And Big Data With Direxion

For traders looking to gain leveraged exposure to the fits and starts caused by the volatility of companies involved in the AI ecosystem, Direxion’s Daily AI and Big Data Bull (ARCA: AIBU) and Bear (ARCA: AIBD) 2X Shares offer enhanced, pure-play exposure to companies from the United States that have business operations in artificial intelligence applications and big data.

Direxion’s Daily AI and Big Data Bull and Bear 2X Shares seek daily investment results, before fees and expenses, of 200%, or 200% of the opposite, respectively, of the performance of the Solactive US AI & Big Data Index*. They enable short-term traders to gain leveraged exposure to the index’s movements, on either side of the trade. For high-risk traders who are bullish or bearish on AI development, these ETFs present an opportunity to conveniently trade a group of seminal companies and meaningfully participate in their activity. These high-risk ETFs are best suited for those who can actively manage the inherent risks of leverage and are looking to capitalize on short-term trends occurring in the AI and big data industry.

Featured photo by Steve Johnson on Unsplash.

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This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.

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

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

The Index is designed by Solactive AG to represent the securities of companies from the United States that have business operations in the field of artificial intelligence (“AI”) applications and big data.

Solactive AG is not a sponsor of, or in any way affiliated with, the Direxion Daily AI and Big Data Bull 2X Shares or Direxion Daily AI and Big Data Bear 2X Shares.

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 the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk, Cash Transaction Risk, Passive Investment and Index Performance Risk, and risks specific to the information technology sector and AI and big data companies. The value of stocks of information technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles. Additional risks include, for the Direxion Daily AI and Big Data Bull 2X Shares, Daily Index Correlation Risk and for the Direxion Daily AI and Big Data Bear 2X Shares, Shorting or Inverse Risk and Daily Inverse Index Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

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