Investors Bet Against Soaring Semiconductor Stocks as Short Interest Rises Amid AI Boom
1min read Amid the notable rise in semiconductor stocks in 2024, investors are increasingly betting against Marvell Technology, Nvidia, and Broadcom, anticipating potential downturns. The rapid growth of generative AI technologies has significantly boosted the stocks of these companies, with Nvidia's shares soaring by 182%, Broadcom's by 119%, and Marvell Technology by 92%. This performance vastly outstrips the 27% increase in the S&P 500 index over the same period.
However, as the year draws to a close, more investors are short selling these major semiconductor stocks. By mid-December, the volume of shorted shares had climbed notably, with Marvell Technology seeing a 25% spike in short interest, reaching levels not seen since August. Short selling involves borrowing shares to sell at the current market price, with the hope of repurchasing them later at a lower price to return to the lender.
Several factors contribute to the increasing short interest in these high-performing stocks. These include notably high valuations, as evidenced by price-to-earnings ratios—Marvell Technology posts an alarming 43.9x, higher than its peers. With earnings reports due in February, the market's lofty expectations could lead to a sharp stock price correction if results falter.
Geopolitical uncertainties, particularly the fierce competition with China and unpredictable export control policies, may also be causing some investor anxiety, thus impacting market sentiment.
Despite the increase in short interest, there is no consensus yet on the implications. Analysts remain largely optimistic about these stocks' prospects. For instance, a FactSet survey revealed that a majority of analysts still lists them as 'buy.' On December 19th, Raymond James analyst Srini Pajjuri raised Marvell Technology's target price from $120 to $130, reaffirming an “outperform” rating. He cited strong AI semiconductor demand potentially driving 25% annual revenue growth over the next few years.
These shares could continue their ascent into the coming year, yet the growing short interest serves as a reminder of inherent risks, regardless of which stock is in question.
