(Bloomberg) — Super Micro Computer Inc.’s 20% rout Friday was a much-needed win for short sellers facing billions of dollars in losses amid its blistering rally.
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Traders who bet against the semiconductor company netted paper profits of $1.2 billion on the one-day dip, its biggest drop since August. Even with the gains, the contrarian group is still down roughly $4.8 billion in paper losses over the last year as the stock has surged more than 760%, according to data from S3 Partners LLC.
“If you’ve been short on the way up, you probably are feeling a lot of pain,” said Michael Sansoterra, chief investment officer at Silvant Capital Management.
Still, short sellers are sticking to their bets that Super Micro’s climb will eventually end. In the last 30 days, the group has increased shares shorted by 12%, piling an additional $623 million into bets against the artificial intelligence darling, per S3.
On Friday, the cost of puts — which serve as downside protection — sank less than equivalent calls, which give exposure to added gains. That dynamic reversed trading patterns earlier in the week, when seemingly boundless euphoria for artificial intelligence pumped interest in call options and propelled the one-month call skew to its highest level in more than a year.
Short sellers may be emboldened by the San Jose, California-based company’s sharp moves higher. The stock rallied 246% in 2023 and is up 183% so far this year, a jump that has some resemblance to the social media-fueled gains of AMC Entertainment Holdings Inc. and GameStop Corp.
Read more: Super Micro CEO Eyes $25 Billion in Sales — But Needs More Chips
“All of a sudden it kind of got a meme stock kind of feel,” said Brian Mulberry, client portfolio manager at Zacks Investment Management, adding that Super Micro does have good things going for it like underlying growth.
Still, its run has been helped by the “AI wave,” Mulberry added. “It got pumped up to a point and then you start to see the shorts build in and it’s like, all right, I’ve seen this movie before.”
Read more: Super Micro’s Vertical Stock Move Suggests a ‘Casino Mentality’
–With assistance from Carly Wanna.
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Eugen Boglaru is an AI aficionado covering the fascinating and rapidly advancing field of Artificial Intelligence. From machine learning breakthroughs to ethical considerations, Eugen provides readers with a deep dive into the world of AI, demystifying complex concepts and exploring the transformative impact of intelligent technologies.
