If there’s one trade that’s worked this year, it’s being long semiconductor stocks and the related ETFs. Short-term, tactical traders are apt to agree, because the Direxion Daily Semiconductor Bull 3x Shares (SOXL) is on a torrid pace.
That ETF attempts to deliver 300% of the daily performance of the NYSE Semiconductor Index. It surged about 26% over the five days ending April 27. It rewarded traders that treated SOXL as a short-term instrument – exactly the way leveraged ETFs should be treated.
Read more: Asset Allocation Summit: Opportunities in Direxion’s Leveraged-Inverse Suite
Given SOXL’s recent run, and that of the broader semiconductor space this year, it’s almost unthinkable that the Direxion Daily Semiconductor Bear 3X Shares (SOXS) – SOXL’s bearish cousin – may be worth examining. However, if one famed investor is accurate in his semiconductor assessment, SOXS is worth a look. Of course, the disclaimer remains: This isn’t a buy-and-hold investment, either.
Burry Betting Against Chip Stocks
Michael Burry, of “Big Short” fame, has previously waxed bearish on Nvidia (NVDA), which is the largest component in the index tracked by SOXL and SOXS. More recently, he unveiled that he’s long puts on the popular chip ETF home to many of the stocks residing in the gauge tracked by the two Direxion ETFs. Puts increase in value when the underlying stock falls. Thus, some risk-tolerant traders may assess SOXS as a play on Burry’s comments.
“I know the SOX will return to earth. Older semiconductor guys know it too. What is happening now is technical,” Burry said in a post on Substack. He is no stranger to contrarian perspectives, including those pertaining to the semiconductor industry.
“Burry, famous for his contrarian value investing, has often voiced his concerns over the ‘unsustainable’ AI boom. He has also compared AI darling Nvidia to Cisco in the early 2000s, saying that while both built strong ecosystems, Nvidia lacks the contractual lock-in that helped Cisco maintain its dominance,” reported StockTwits.
Burry acknowledged that the narrative regarding chip shortages stemming from rapid data center expansion is real. However, in true contrarian form, he added that if he had existing long positions in the semiconductor segment, he’d sell those positions.
That point of view, coupled with his reputation for against-the-grain views, don’t guarantee validation of the short chip stocks thesis. Traders need to keep that in mind. However, on the back of Burry’s commentary, SOXS may be worth monitoring.
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