ETF Spotlight: NVDL Bets Big on Nvidia Stock

Analysts see upside potential for Nvidia as earnings approach.

TwitterTwitterTwitter
kent
|
Research Lead
Reviewed by: etf.com Staff
,
Edited by: James Rubin

As Nvidia’s second quarter earnings report approaches, traders and investors are eyeing the GraniteShares 2x Long Nvidia Daily ETF (NVDL) as a way to potentially magnify gains from the anticipated market reaction.  

By providing two times (200%) the daily performance of Nvidia stock, NVDL may be an option for those confident in a positive earnings surprise.  

However, the leveraged nature of the ETF also means that any unexpected downturns could result in equally magnified losses. This article explores the benefits and risks of buying NVDL, helping investors weigh the potential rewards against the heightened risks. 

How NVDL Works

The NVDL ETF (GraniteShares 2x Long NVIDIA Daily ETF) is a leveraged exchange-traded fund that is designed to deliver 200% of the daily return of Nvidia's stock. Thus, if NVDA’s price increases, NVDL's price is expected to increase by two times that amount. Conversely, if NVDA decreases, NVDL's price is expected to decrease by two times that amount. 

The leverage is reset daily, meaning NVDL only targets two times the return of Nvidia’s stock for that day. The performance over longer periods can differ from 2x due to the effects of compounding, particularly if the stock price is volatile. 

For example, if Nvidia’s stock rises 2% during the trading day, NVDL, being 2x leveraged, should rise by 4% (2 times 2%). A daily decline of 2% for NVDA would be expected to produce a 4% decline for NVDL. 

Tip: To learn more about the potential negative effects of compounding, see our article, Why Do Leverage ETFs Decay? 

Why Would an Investor Buy NVDL?

NVDL is primarily designed for short-term traders who believe that Nvidia's stock will increase in the near term. Because it is a leveraged ETF, it amplifies daily gains, making it an attractive option for investors looking to capitalize on short-term movements in Nvidia's stock price. 

Investors who are bullish on NVIDIA and want to maximize their exposure to its stock performance without buying options or using margin might consider NVDL. It's also a way to increase exposure to one of the leading companies in the semiconductor and AI industries.  

Some investors might use NVDL as part of a broader tactical allocation strategy. For example, if an investor believes that Nvidia is likely to outperform due to strong earnings or favorable market conditions, they might use NVDL to gain more significant exposure over a short period.  

Nvidia Stock Price Forecast, Analyst Ratings

As of Aug. 22, 2024, Nvidia (NVDA) has a consensus rating of "Strong Buy" from 41 Wall Street analysts, based on 37 buy ratings, 4 hold ratings, and 0 sell ratings. The average price target for Nvidia is roughly $144, which is nearly a 13% increase from the current price of $126, according to the investment research and analysis site TipRanks. The highest analyst price target is $200.00, and the lowest forecast is $100.00. 

Bottom Line on NVDL

The leveraged nature of NVDL means it can be more volatile than the underlying Nvidia stock, which can lead to larger gains or losses on a daily basis. Therefore, investors considering NVDL generally have a strong conviction in short-term movements of Nvidia's stock and be comfortable with the higher risks associated with leveraged ETFs.  

Furthermore, over time, especially in volatile markets, the cumulative returns may not equal 2x the return of Nvidia stock due to compounding effects.

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.