Apple And Microsoft Are Becoming Targets For Short-sellers While There Are New 'Favorites' In Tech

At the start of 2024, tech stocks rebounded after a brief downturn. However, the divergence in the market is also widening.

Data from S3 Partners shows that Apple and Microsoft, the largest market cap, have become the tech stocks with the highest short positions in the US stock market, while NVIDIA, Meta, and AMD are quickly becoming the market's favorites. These 3 stocks have contributed nearly 70% of the S&P 500's gains this year.

Both Apple and Microsoft have their own concerns

According to itemized data from S3 Partners managing director Ihor Dusaniwsky, in the first two weeks of this year, the sizes of short bets for Apple and Microsoft were about $18.63 billion and $18.61 billion respectively, ranking first and second in the global market, while Tesla has slipped from first in rank to third due to factors like price reductions.

The pessimistic stance on Apple may reflect the weakness of the fundamentals: The company hasn't found new growth points in the backdrop of slowing demand for iPhones, especially in the key Asia-Pacific market. Given the attempt at hybrid reality headsets like Vision Pro, some institutions are cautious about predicting the popularity of these devices in the next two years.

Piper Sandler analyst Harsh Kumar downgraded Apple from overweight to neutral at the beginning of the year, citing concerns over valuation and pressure on the smartphone market. Kumar expressed concern about the phone inventory for the first half of this year, predicting that the growth rate of smartphone sales has hit its peak.

Meanwhile, Microsoft, which just overtook Apple last week to become the top market cap company, is also facing some troubles from antitrust and regulatory restrictions, as the Department of Justice and the Federal Trade Commission (FTC) are reportedly discussing in-depth the possibility of investigating OpenAI on antitrust grounds, including its relationship with Microsoft.

Insiders say that neither institution is prepared to cede jurisdiction.

The New Big Three Are Emerging?

With the Philadelphia Semiconductor Index hitting a record high last Monday and TSMC releasing an optimistic performance guide last week, NVIDIA, the leader in the AI boom, hit a record high once again.

On Monday, the chip maker's share price broke the $600 mark during trading, and it already has a cumulative increase of over 20% this year and a nearing $1.5 trillion market value.

It's also noteworthy that Meta and AMD have also been benefiting from this recent surge of AI chips: According to statistics, these two, along with NVIDIA, have contributed more than 60% of the S&P 500's gains this year.

AMD recently released its new MI300 series AI chip, trying to challenge NVIDIA's dominant position in the field of AI chips. The company has already received orders from Microsoft, Oracle, and Meta. Barclays has previously upgraded AMD's stock price target significantly from $120 to $200, expecting its AI chip sales to achieve $4 billion in revenue this year.

Meta has risen by over 200% in the past year due to boosting performance and various cost-cutting measures, but Facebook's parent company is also working hard to break through in the AI business.

Meta CEO Mark Zuckerberg recently posted on social media that they are strengthening the power of their AI research team and replenishing their AI infrastructure arsenal by purchasing 350,000 H100 GPU chips from chip designer NVIDIA before the end of the year. This acquisition would bring the company's total number of GPUs to approximately 600,000 and put it among the world's most powerful AI systems.

However, investors still need to be aware of adjustment risks after the release of short-term gains. Seeking Alpha has discovered that the market trading performance for stocks like NVIDIA shows clear signs of a gamma squeeze, with the put-call ratio in the historical range and implied volatility rising and tilting toward the call side.

Although this can be seen as a catalyst for a bull market, it can also trigger volatility under excessive speculation. As is generally the case, once the implied volatility of the call option is too high, the process of a gamma squeeze will dissipate, causing the stock to plunge significantly.