Traders betting against semiconductor stocks are taking a beating this year as increased interest in artificial intelligence fueled a blistering rally in some sector names.
(Bloomberg) — Traders betting against semiconductor stocks are taking a beating this year as increased interest in artificial intelligence fueled a blistering rally in some sector names.
Paper losses for semiconductor short sellers have topped $18 billion in 2023, according to data from S3 Partners LLC. Put another way, traders betting against semis have lost 92 cents on every dollar they’ve put into short positions this year.
It’s no surprise as the Philadelphia Stock Exchange Semiconductor Index is up 39% so far this year, closing at its highest since March 2022 on Tuesday.
Nvidia Corp. has been the largest source of pain for those betting against the chipmaker, with mark-to-market losses of $8.6 billion this year amid the stock’s 170% surge. The rally also prompted the most short-covering, when traders exit their contrarian positions by buying the stock back, in the sector in the last 30 days.
Short sellers have also covered large positions in Texas Instruments Inc., ON Semiconductor Corp. and Microchip Technology Inc., all components of the gauge, in the last 30 days, per S3 data.
“These stocks have been bucking broncos on the upside, so it can be intimidating to try and short them, betting on a reversal,” Alec Young, chief investment strategist at quant-research firm Mapsignals, said.
That said, short sellers are far from being discouraged. In the last 30 days, traders have added nearly $1.4 billion in bets against the sector, with the largest increases in short selling in Advanced Micro Devices Inc., Intel Corp., Marvell Technology, Inc. and Lattice Semiconductor Corp.
“Eventually you will have great shorts, the low-quality companies that don’t make money, just like the dot-commers that got blown up 20 years ago,” Brad Lamensdorf, co-manager of the AdvisorShares Ranger Equity Bear ETF said. “However, trying to play this right now is like beating your head against the wall.”
It’s dangerous to bet against a trend in its infancy, as the market is likely to give companies the benefit of the doubt until their technology is implemented and they start missing expectations, Lamensdorf said.
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And, while there is certainly choppy performance in the sector now, new money flowing into the trend is easily burning short sellers.
“It would be like trying to short the meme stocks in the middle of that craze,” Lamensdorf said. “Even if there is a good fundamental reason to short, you can get wiped out.”
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