The share price for software and semiconductor manufacture for GPU’s and AI, NVIDIA Corp (NVDA) jumped over +10% in overnight trading and over +15% in midday trading after announcing blowout fourth quarter 2023 earnings and an elevated first quarter 2024 revenue forecast. NVDA is by far the largest short in the Semiconductor sector with $18.3 billion of short interest and the third largest U.S. short behind MSFT ($20.17 billion) and AAPL ($18.72 billion) and ahead of TSLA ($17.01 billion).

Short sellers have continued to keep their short exposure in this sector despite stock prices outperforming the market. The Philadelphia Semiconductor Index is up over 11% for the year, almost double the S&P 500’s +6% performance.

Over the last thirty days we’ve seen Semiconductor sector short interest increase by $1.9 billion to $59.5 billion of total short interest. This Change was made up of a $1.67 billion increase in the value of shares shorted (mark-to-market changes in stock price) coupled with $196 million of additional short selling.

The largest increase in short selling over the last thirty days occurred in TSM, NVDA and AVGO while we saw short covering in AMD, ON, TXN and INTC. Short sellers in the sector were actively building their positions even though the market was going against them. The possibility of a delay in Federal Reserve interest rate easing coupled with the hope of a pullback of stock prices in an overheated sector powered by high AI expectations made shorting the Semiconductor sector both a market hedge and an outright Alpha play.

Today’s Semiconductor rally, driven by NVDA’s blowout earnings, has produced an AI generated nightmare for short sellers as they are down $4.3 billion in one day mark-to-market losses, down -7.26%. Nearly two-thirds of these losses were the $2.8 billion of losses for NVDA shorts.

Semiconductor short sellers are now down -$7.2 billion (-12.00%), for the month of February and down -$9.7 billion (-16.8%) for the year. The Semiconductor sector is the worst performing sector on the short side in year-to-date mark-to-market losses, ahead of Interactive Media & Services (-$4.5 billion), Biotechnology (-2.6 billion) and Pharmaceuticals (-$1.9 billion).

We should expect short covering in NVDA and other stocks in the Semiconductor sector. But since the majority of today’s price move was at or just after the open, the early mark-to-market losses were inescapable for many short sellers that were looking to trim their positions after NVDA’s earnings report. Short sellers will probably wait a bit to look for more favorable exit points throughout the day and over the next several days. Buy-to-covers will help semiconductor stock prices higher along with a reinvigorated jolt of long buying. How many shares will be squeezed? No one but The Shadow knows, that is unless NVDA’s AI GPU chips can foretell the future.

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