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Arm’s Stock Surge Torches Short Sellers, Causing $445M Paper Losses

Key Points:

  • Arm Holdings PLC’s stock experienced a record-breaking 48% surge, causing short sellers to suffer $445 million in paper losses.
  • Shorting semiconductor stocks has proven to be an unprofitable trade this year, with bearish bets resulting in over $7 billion in mark-to-market losses.
  • Arm’s stock explosion on the back of impressive earnings highlights the company’s success in the artificial intelligence sector.
  • Other semiconductor companies, such as Broadcom Inc., Taiwan Semiconductor Manufacturing Co. Ltd., and Monolithic Power Systems Inc., also incurred significant losses.
  • Arm’s short interest stands at $957 million, representing approximately 1.22% of the float.
  • The managing director of predictive analytics at S3 Partners predicts a reversal of the short-selling trend in Arm in 2024, as short sellers are squeezed out of their positions.

Introduction

Arm Holdings PLC’s stock experienced an unprecedented surge on Thursday, resulting in a record-breaking 48% increase. This surge not only marked the best day on record for Arm’s stock but also caused immense losses for short sellers, reaching a staggering $445 million. The semiconductor sector, in general, has been unkind to short sellers this year, with over $7 billion in mark-to-market losses incurred. Arm’s surge serves as a testament to the company’s success in the artificial intelligence sector and has highlighted the risks associated with shorting semiconductor stocks.

Main Content

Arm’s Impressive Earnings and AI Momentum

Arm, a renowned chip designer, surprised investors with better-than-expected earnings. The company’s results showcased the momentum behind its new architecture and its success in the artificial intelligence frenzy. The rise and adoption of accelerated compute and AI workloads have driven the demand for increased compute capability and power efficiency per device, leading ARM’s customers to adopt their highest-performance compute intellectual property. This success has propelled Arm’s stock to new heights, leaving short sellers in a precarious position.

Short Sellers’ Massive Losses

The surge in Arm’s stock price resulted in short sellers suffering significant losses. According to S3 Partners, short sellers accumulated $445 million in paper losses, highlighting the risks associated with shorting semiconductor stocks. Arm’s surge alone accounted for a substantial portion of the daily losses in the chip sector. However, other semiconductor companies, including Broadcom Inc., Taiwan Semiconductor Manufacturing Co. Ltd., and Monolithic Power Systems Inc., also experienced substantial paper losses, each exceeding $100 million.

Short Interest and Predictions for Reversal

Arm’s short interest currently stands at $957 million, with approximately 12.4 million shares shorted, representing around 1.22% of the float. S3 Partners’ managing director of predictive analytics, Ihor Dusaniwsky, predicts a reversal of the short-selling trend in Arm by 2024. He expects short sellers to be squeezed out of their positions, resulting in a surge of short covering during the recent rally. Dusaniwsky advises short sellers to look for a slight rebound to recoup some of their mark-to-market losses as they trim their exposure.

Conclusion

The significant surge in Arm Holdings PLC’s stock price has sent shockwaves through the semiconductor sector, particularly impacting short sellers who have incurred substantial losses. This event highlights the risks and challenges associated with shorting semiconductor stocks. As Arm continues to thrive in the artificial intelligence sector, it remains to be seen how short sellers will respond and whether the predicted reversal of the short-selling trend will materialize. In the meantime, the industry and investors alike will closely monitor Arm’s performance and the implications it may have for the broader semiconductor market.

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