Without question, social media juggernaut Meta Platforms Inc. (NASDAQ:META) has been one of the top beneficiaries of the artificial intelligence surge. Thanks to its vast network, Meta commands a data-rich environment that's the envy of the broader technology sphere. Furthermore, management is exploring various semiconductor startup deals while committing up to $72 billion in 2025 capital expenditures, all in an effort to push deeper into AI infrastructure.
It’s difficult to argue against the long-term results. For example, in the trailing five years, META stock has gained nearly 169%. In contrast, the Nasdaq Composite has moved up about 97% during the same frame — impressive but not nearly as much as META. At the moment, the social media giant carries a market capitalization of approximately $1.79 trillion, making it one of the elite few enterprises that have crossed this threshold.
Still, concerns exist, particularly regarding the concept of diminishing returns. Since the beginning of this year, META stock has moved up a bit over 21%. While this is a solid performance, the benchmark S&P 500 is not that far behind with a performance of 14% for the same period. Naturally, the possibility of new stakeholders holding the bag may have kept some market participants on the sidelines.
To be fair, Meta offers no apparent sign that the company faces corrective pressure. In the company's most recent earnings report, it posted earnings per share of $7.14 on revenue of $47.52 billion. Both figures beat Wall Street analysts’ expectations, which landed at $5.87 and $44.81 billion, respectively. Plus, the last time Meta missed on either earnings or sales was in February 2023.
Adding to the optimism, Amazon.com Inc (NASDAQ:AMZN) founder Jeff Bezos stated that while AI was admittedly in a bubble, the underlying technology is substantive and will help push companies invested in the innovation to reach new plateaus.
Investors will certainly hope so. While META stock features a relatively tame price-to-earnings ratio of around 26 times, it's also fair to point out that a substantial amount of capital gains in the S&P 500 has been concentrated in a few elite names. This could present market breadth concerns that may impact META.
The Direxion ETFs: With traders on both sides of the sentiment table eager to speculate, financial services provider Direxion offers two countervailing exchange-traded funds. For the optimists, the Direxion Daily META Bull 2X Shares (NASDAQ:METU) tracks 200% of the performance of META stock. On the other end, the Direxion Daily META Bear 1X Shares (NASDAQ:METD) tracks 100% of the inverse performance of the namesake security.
Fundamentally, one of the central purposes of these Direxion ETFs is to facilitate a convenient mechanism for speculation. Generally, those interested in leveraged or inverse positions must engage the options market, which brings with it unique complexities. With Direxion's specialized funds, however, traders can acquire the underlying units — much like any other publicly traded security. Therefore, the learning curve is mitigated.
Still, prospective participants must be aware of the risks. First, adding leverage or incorporating an inverse profile on an underlying security tends to amplify volatility risks. Second, Direxion ETFs are designed for exposure lasting no longer than one trading session. Going beyond this recommended period may expose unitholders to positional decay tied to the daily compounding effect.
The METU ETF: Since the start of the year, the METU ETF has gained roughly 20%. However, the overall performance has been choppy, forcing a cautious outlook.
- Currently, METU may be at an inflection point, with the price action falling below the 50-day moving average. As such, the bulls will be anxious to see if the 200 DMA can hold support.
- Volume may hold the key to understanding where the METU ETF may head next, with last Friday witnessing significant distributive volume. A substantive recovery should include a confirming trend in the amount of shares traded.
The METD ETF: From January's opening volley, the METD ETF has struggled, losing over 24%. What's interesting, though, is that the inverse fund has gained 5% in the trailing month.
- While the overall picture of the METD ETF looks enticing, the recent narrative has shifted, with the price action shooting above the 50 DMA.
- Still, volume levels aren't quite confirming the rally in the inverse fund, which means it's difficult to determine if more traders find the skeptical argument convincing.
Featured image by Pete Linforth on Pixabay.
