With Qualcomm At A Crossroads, These Direxion ETFs Allow You To Play Both Sides

Arguably, technology stalwart Qualcomm Inc (NASDAQ:QCOM) represents one of the more understated enterprises within the broader innovation ecosystem. Since the beginning of this year, QCOM stock gained 2.5%, which is admittedly disappointing. During the same frame, the tech benchmark Nasdaq Composite index moved up nearly 7%. Still, traders are examining all angles to determine their next move.

Predominantly, Qualcomm's brand is inextricably tied to wireless tech, holding essential patents in 3G, 4G and now 5G. For many years, this leveraging of intellectual property (IP) has been a lucrative one, effectively forcing major smartphone manufacturers to pay Qualcomm licensing fees to sell their mobile communication products. So long as this paradigm remains intact, the tech giant benefits from royalties, turning the IP unit into a steady, high-margin annuity.

Another fundamental catalyst to consider is the upside potential stemming from the automotive market, along with the Internet of Things (IoT). Thanks to the company's Snapdragon Digital Chassis — billed as a unique system that combines all of Qualcomm's automotive innovations into one platform — the automotive sector represents a potential key revenue driver. Areas which Qualcomm can disrupt include infotainment, telematics and driver-assist systems. As well, the company's expansion into edge devices provides a pathway to industrial IoT applications.

On a related note, QCOM stock could be a prime beneficiary of artificial intelligence, specifically the shift toward edge AI. This term reflects the concept of AI running directly on devices (such as smartphones, infotainment systems and industrial sensors) instead of being processed in the cloud. It's an arena where Qualcomm shines as it builds smaller, power-efficient chips that can run AI on the edge device itself.

Still, not everything is aligned favorably for QCOM stock. Primarily, what has been good for Qualcomm has been a burden for smartphone manufacturers. Earlier this year, Apple Inc (NASDAQ:AAPL) took a decisive step toward cutting its ties with Qualcomm by introducing the iPhone 16e C1 chip, an inhouse modem. Other smartphone makers are taking similar steps, putting pressure on Qualcomm's cash cow.

It’s also fair to point out that the smartphone market is highly cyclical. Much of Qualcomm's financial performance is dependent on global smartphone shipments, a mature ecosystem and in some regions have experienced decline. Therefore, any slowdown in consumer upgrades or periods of wider economic weakness imposes a headwind on Qualcomm and by deduction QCOM stock.

The Direxion ETFs: Subsequently, traders have ample opportunity to extract profitability from both sides of the sentiment table. It's here that Direxion exchange-traded funds enter the equation. For the optimistically minded, prospective participants may consider the Direxion Daily QCOM Bull 2X Shares (NASDAQ:QCMU), which tracks 200% of the performance of QCOM stock. For the pessimists, the Direxion Daily QCOM Bear 1X Shares (NASDAQ:QCMD) tracks 100% of the inverse performance of the namesake security.

In either case, the Direxion ETFs offer a convenient platform for speculation. Typically, those interested in leveraged trades or short positions must engage the options market. However, financial derivative products tend to have complexities that may not be appropriate for all investors. In contrast, Direxion ETFs can be bought and sold like any other public security, thereby mitigating the learning curve.

That's not to say, though, that these products are without risk. On the contrary, Direxion ETFs carry unique risk profiles that must be considered before participation. First, leveraged and inverse funds tend to be more volatile than standard ETFs tracking benchmark indices like the S&P 500. Second, these specialized products are designed for one-day exposure. Holding beyond the recommended period may expose investors to value decay due to the daily compounding phenomenon.

The QCMU ETF: Making its debut late last month, the QCMU ETF has so far gained about 2%, a beneficiary of broader positive tech sentiments.

• Given its short history, it's difficult to give a specific technical assessment of the QCMU ETF.
• However, the underlying QCOM stock has been charting a rising trend channel since April this year, which may bode well for QCMU.

The QCMD ETF: Likewise, making its debut in June, the QCMD ETF presents an unusual case by also moving higher, in this case by 3.16%.

• The lack of trading history of the QCMD ETF makes providing technical analysis difficult.
• Still, momentum in QCOM stock appears to have waned since early this month, which has contributed to QCMD's performance.

Featured image by Monoar Rahman Rony on Pixabay.