Productivity Clashes With Premium Valuations For Direxion’s PLTR-Focused Bull And Bear Funds – Direxion Daily PLTR Bear 1X Shares (NASDAQ:PLTD), Palantir Technologies (NASDAQ:PLTR)

Easily one of the most dominant enterprises in recent memory is Palantir Technologies Inc. PLTR. A big data analytics specialist, Palantir has been a massive beneficiary of the boom in artificial intelligence. Since the start of this year, PLTR stock has gained nearly 64% of equity value, easily leapfrogging the Nasdaq Composite index, which is down 1% during the same period. Still, valuation concerns impose a dark cloud over PLTR’s prospects.

On the business front, it’s difficult to argue against Palantir’s dominance, especially in the realm of the defense industry. Recently, PLTR stock popped higher thanks to the Department of Defense awarding the underlying company a $795 million modification to a contract for its Maven Smart System software licenses.

Initially, the deal was announced last year as a $480 million fixed, firm-price contract. However, with the modification, the terms of the agreement bring the total contract value up to nearly $1.28 billion. Fundamentally, the upgrade demonstrates the core influence that Palantir has achieved in its primary market.

In addition, Palantir is making significant inroads into the commercial sector. Notably, the company’s Artificial Intelligence Platform (AIP) is gaining traction, allowing it to partner with major corporations. Indeed, Wedbush analyst Dan Ives believes that PLTR stock will command a trillion-dollar market capitalization over the next three years.

Still, not everyone is convinced about Palantir’s stratospheric run. One of the most notable criticisms centers on valuation. As of this moment, PLTR stock trades at over 538-times trailing-12-month earnings. About a year ago, this metric was around 149 times – which was still a lofty figure. The anxiety, then, is that early investors will head for the exits.

This isn’t just an empty sentiment. This year, the predominant transaction type among insider activity for PLTR stock was sell orders, either for the equity or its options. To be fair, insiders sell stock for a variety of reasons, many of them mundane. Nevertheless, it’s not the most encouraging sign when insiders – the folks that know the business the best – head for the exits.

The Direxion ETFs: While the trajectory of PLTR stock this year has been largely one-sided, there’s more than enough room for skepticism – and that suits financial services provider Direxion perfectly. Thanks to its PLTR-focused bull and bear exchange-traded funds, traders can easily speculate on the tech specialist’s fortunes (or misfortunes).

For the optimists, they may consider the Direxion Daily PLTR Bull 2X Shares PLTU, which seeks the daily investment results, before fees and expenses, of 200% of the performance of PLTR stock. Conversely, the pessimists may be intrigued by the Direxion Daily PLTR Bear 1X Shares PLTD, which tracks 100% of the inverse performance of the namesake equity.

Primarily, the main functionality of these specialized ETFs is to offer convenient mechanisms for speculation. Typically, those interested in utilizing leverage or engaging in short positions must trade options. While derivative financial instruments offer incredible flexibility, they’re also complex vehicles with unique risk-reward profiles. With Direxion ETFs, the units can be bought and sold much like any other public security, thus easing the learning curve.

Still, there are serious risks to consider. First, both leveraged and inverse ETFs tend to be more volatile than standard bread-and-butter funds. Second, PLTU and PLTD were designed for exposure lasting no longer than one day. Holding onto these funds for longer than the recommended period may lead to value decay due to the daily compounding effect.

The PLTU ETF: Since the start of this year, the Direxion Daily PLTR Bull 2X Shares nearly doubled in value thanks to the robust performance of PLTR stock.

• Currently, technical momentum in the PLTU ETF is robust, with the bull fund above both its 50-day moving average (DMA) and its 20-day exponential moving average (EMA).
• One concern to note is that May’s rising price action has been met with declining volume. Ideally, rising volume should confirm rising price, thus warranting caution.