Arm Holdings PLC’s stock easily had its best day on record Thursday, and its 48% daily surge scorched short sellers in the process.
Shorts racked up $445 million in paper losses as Arm’s stock
exploded higher in the wake of earnings, according to S3 Partners. The action highlighted how shorting semiconductor stocks “has not been a profitable trade” this year, S3’s Ihor Dusaniwsky said in a report.
Those who’ve made bearish bets against the sector are down more than $7 billion in mark-to-market losses so far this year, he noted, and about a fifth of those losses came Thursday alone.
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While a sizable chunk of Thursday’s paper losses in the chip sector related to Arm, daily paper losses for those short Broadcom Inc.
Taiwan Semiconductor Manufacturing Co. Ltd.
and Monolithic Power Systems Inc.
were each in excess of $100 million, according to S3.
Dusaniwsky flagged that Arm short interest is $957 million, with about 12.4 million shares shorted and those representing roughly 1.22% of the float. Arm ranked 14th by short interest within the semiconductor sector.
“We should expect a reversal of the short-selling trend we have seen in ARM in 2024 as short sellers get squeezed out of their positions,” said Dusaniwsky, the managing director of predictive analytics at S3. “Short covering during today’s rally should continue for the next few days as short sellers look for a slight rebound to the upside to recoup some of their mark-to-market losses as they trim exposure.”
Arm, a chip designer, stunned investors late Wednesday with better-than-expected results that highlighted momentum for the company’s new architecture as well as traction related to the artificial-intelligence frenzy.
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“The rise/adoption of accelerated compute/AI workloads in the data center, edge and endpoints is driving the requirement for significantly more compute capability and power efficiency per device and motivating ARM’s customer to adopt their highest-performance compute” intellectual property, JPMorgan’s Harlan Sur wrote in a note to clients.