Recent turbulence in chip stocks is providing an invitation for short sellers to maintain their bearish positions, even after enduring significant losses during a year dominated by an artificial intelligence-led rally. Despite a recent dip in semiconductor shares, those betting against major industry players like Micron and Qualcomm have shown little inclination to pull back. The continued high level of short interest in these stocks indicates that some investors view the recent downturn as an early signal of a more substantial decline in one of Wall Street’s most fervent trades.
This trend comes as investors prepare for Nvidia’s earnings report, set to be released on Wednesday after market hours. Nvidia’s updates have historically acted as pivotal market events for the broader AI landscape. While some bears might feel pressured as optimism about Nvidia’s outlook could spark renewed momentum in semiconductor stocks, many remain steadfast in their positions.
Qualcomm stands out as one of the most heavily shorted stocks within the semiconductor sector. Current short interest in Qualcomm has ballooned to approximately $11.8 billion, marking the highest level in over a decade, according to data from S3 Partners. This surge in short positions resembles prior instances, such as in 2018, when bearish bets neared $10 billion in light of Qualcomm’s failed acquisition of NXP Semiconductors.
Interestingly, short sellers have managed to hold their ground even amidst recent price declines. Since mid-May, the total number of shares sold short in Qualcomm has actually increased, contrasting with the stock’s declining price. A similar trend can be observed with Micron, where short interest remains just shy of a 52-week high, and bearish positions in Nvidia and Intel also remain elevated compared to earlier in the year.
Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, highlighted the lack of capitulation among short sellers. He noted, “The speed of this move is so great. They’ve lost so much money that they want to see how much money they can make back if a pullback in stock prices occurs.” This reluctance to cover suggests that many investors are skeptical about whether valuations for certain parts of the semiconductor industry can continue to rise after a prolonged period of AI-driven growth.
Chip stocks have significantly contributed to the broader market surge, helping major indexes achieve repeated record highs as investors flocked to companies positioned to benefit from escalating investments in AI infrastructure. However, positioning against this sector has not come without its challenges. Short sellers have continuously faced pressure to unwound their positions, spurred by demand for AI-related hardware that has surpassed expectations and major chipmakers delivering better-than-anticipated results. Despite the recent setbacks, the PHLX Semiconductor Index still boasts a remarkable gain of over 65% this year, having experienced its first weekly loss in seven weeks.
