Key Points
Micron stock is the biggest holding on the SOXL ETF.
Sandisk's losses are worse than Micron's this week.
Luckily, the SOXL doesn't own any Sandisk stock at all.
The Direxion Daily Semiconductor Bull 3X Shares ETF (NYSEMKT:SOXL) acts a lot like a momentum "stock" -- but its momentum is moving in the wrong direction today.
This ETF takes the performance of semiconductor stocks as a whole and multiplies it -- up or down -- by 3x. When tech investors are optimistic, that can be a good thing -- but right now they're not, and SOXL is down more than 26% this week.
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That's including a 6.5% decline through 11 a.m. ET today.
Image source: Getty Images.
China challenges Micron and Sandisk
Why are tech semiconductor investors nervous? Because of ChangXin Memory Technologies, the Chinese DRAM company that went public earlier this year.
CXMT announced Monday it's made progress in "4F square" technology to increase DRAM storage density. Tech investors worry CXMT may soon be coming for the market shares of Western memory makers Micron (NASDAQ:MU) and Sandisk (NASDAQ:SNDK).
As a result, Micron stock is down 13.5% so far this week, and Sandisk is down 18%.
What this means for the Direxion Daily Semiconductor Bull 3X Shares ETF
Believe it or not, this is actually good news for owners of the Direxion Daily Semiconductor Bull 3X Shares ETF -- or at least not as bad news as might have been. Although Micron is SOXL's No. 1 biggest holding (at 8.6%), the ETF doesn't own any Sandisk stock at all. Thus, Micron's smaller decline is driving SOXL's fall.
If Sandisk were SOXL's biggest holding, the damage would have been far worse.
Granted, this also means the gains will be smaller when SOXL bounces back -- and it will bounce back once investors remember that Micron stock trades under 25x earnings but will grow earnings 45% annually over the next five years.
But that's just how a 3x stock ETF works. You take the bad with the good.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.