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The technology sector is back and dominating the stock market rally once again this year. Strong corporate earnings, corporate actions and optimism over artificial intelligence (AI) are driving the sector higher.

While almost every corner of the technology sector is shining, the demand for leveraged ETFs has increased, as these could see huge gains in a short time frame compared to simple products. We have highlighted five of them that are making the most of the sector rally. These are GraniteShares 2x Long NVDA Daily ETF (NVDL - Free Report), GraniteShares 2x Long META Daily ETF (FBL - Free Report), BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report), ProShares Ultra Semiconductors (USD - Free Report) and Direxion Daily Technology Bull 3x Shares (TECL - Free Report). These funds will continue to be investors’ darlings, at least in the near term, provided the sentiments remain bullish.

Robust Earnings

Per the Earnings Trends report, total earnings of 74.7% of the sector’s market capitalization in the index are up 21.9% from the same period last year on 6.4% higher revenues, with 88.6% beating EPS estimates and 72.7% beating revenue estimates. The Q4 earnings and revenue growth rates for these tech companies are notably tracking higher than in other recent periods. While the EPS beat ratio is tracking above the 20-quarter average, the revenue beat ratio is below the 20-quarter average.

Investors should note that the tech sector is solely responsible for keeping Q4 earnings growth in the positive territory. The "Magnificent Seven" has been the biggest engine of growth and currently accounts for 29.3% of the S&P 500 index’s total market capitalization.

For the "Magnificent Seven" companies, combining the actual results of the six companies that have come out with estimates and the one still-to-report company, total Q4 earnings are on track to be up 48.7% from the same period last year on 14.5% higher revenues. Additionally, the earnings outlook for these tech titans is improving steadily. The 30.4% earnings
growth expected for the group in the first quarter of 2024 is up from 25.7% last week, with estimates for the subsequent quarters going up.

Record Cash Generation

Five technology behemoths — Apple Inc. (AAPL - Free Report), Microsoft Corp (MSFT - Free Report) ., Alphabet Inc. (AAPL - Free Report), Amazon.com Inc. (AMZN - Free Report), and Meta Platforms Inc. (META - Free Report) —reported unprecedented cash inflows. According to Bloomberg's analysis, these giants amassed a staggering $140 billion in cash from operations in the final quarter of 2023, setting a new benchmark for the sector. This financial prowess not only highlights their market dominance but also positions them to enhance shareholder value significantly.

The companies will likely channel their surplus free cash flow back to shareholders, given their strong balance sheets and high net cash positions. Currently, Apple, Microsoft and Meta have implemented dividend plans, a testament to their commitment to returning value to their shareholders.

Notably, Meta stock soared as much as 21% after its big earnings beat, buyback and dividend plans, adding roughly $200 billion to its market capitalization. This marks the the biggest single-day market value addition, eclipsing the $190 billion gains made by Apple and Amazon.com in 2022.

Solid Sector Fundamentals

The expansion of AI applications holds the promise of ushering in fresh opportunities for growth within the sector. The global digital shift has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping, thereby bolstering strength in the sector. The rapid adoption of cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, machine learning, digital communication, blockchain and 5G technology will continue to fuel a rally.

GraniteShares 2x Long NVDA Daily ETF (NVDL) – Up 81.8%

GraniteShares 2x Long NVDA Daily ETF magnifies exposure to a single trade, seeking two times (200%) the daily percentage change of the common stock of Nvidia (NVDA). It has an expense ratio of 1.15% and has amassed $551.7 million in its asset base.

GraniteShares 2x Long META Daily ETF (FBL) – Up 64.1%

GraniteShares 2x Long META Daily ETF tracks two times the performance of the stock of Meta Platforms. It has accumulated $54 million in its asset base and charges 1.15% in annual fees.

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU) – Up 48.6%

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN seeks to offer three times leveraged exposure to the NYSE FANG Index. The Index includes 10 highly liquid stocks that represent industry leaders across today’s tech and internet/media companies. BMO REX MicroSectors FANG+ Index 3X Leveraged ETN charging 95 bps in annual fees. It has accumulated $3.8 billion in its asset base.

ProShares Ultra Semiconductors (USD) – Up 47.3%

ProShares Ultra Semiconductors offers two times exposure to the daily performance of the Dow Jones U.S. Semiconductors Index. It has gathered $512.8 million in its asset base and charges 95 bps in fees per year from investors.

Direxion Daily Technology Bull 3x Shares (TECL) – Up 37.8%

Direxion Daily Technology Bull 3x Shares targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $3.4 billion in its asset base and charges 92 bps in fees per year.

Bottom Line

As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures.

Still, for ETF investors bullish on the tech sector for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance and a belief that the trend is the friend in this corner of the investing world.

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