Arm Holdings PLC experienced an unprecedented surge in its Arm stock price on Thursday, marking its best day on record with a 48% increase. This surge inflicted significant losses on short sellers, totaling $445 million in paper losses, as reported by S3 Partners. The surge in Arm’s stock price following its earnings report underscored the lack of profitability in shorting semiconductor stocks this year, as highlighted by S3’s Ihor Dusaniwsky.
The overall bearish sentiment against the semiconductor sector has led to substantial mark-to-market losses exceeding $7 billion so far this year. Notably, Thursday alone accounted for around a fifth of these losses. While Arm accounted for a significant portion of Thursday’s losses, other prominent semiconductor stocks such as Broadcom Inc. (AVGO), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), and Monolithic Power Systems Inc. (MPWR) also experienced daily paper losses exceeding $100 million each, according to S3’s data.
Arm’s Short Interest
Arm’s short interest, flagged by Dusaniwsky at $957 million, reveals approximately 12.4 million shares shorted, representing about 1.22% of the float. Within the semiconductor sector, Arm ranks 14th in short interest. Dusaniwsky, managing director of predictive analytics at S3, anticipates a reversal of the short-selling trend in 2024, with short sellers likely to be squeezed out of their positions. He expects short covering during the current rally to persist over the next few days as sellers seek to recoup some of their mark-to-market losses by trimming exposure.
Potential Reversal in 2024
The chip designer surprised investors with better-than-expected results, particularly emphasizing momentum in its new architecture and traction in the artificial intelligence sector. According to JPMorgan’s Harlan Sur, the increasing adoption of accelerated compute/AI workloads across various domains is propelling the demand for enhanced compute capability and power efficiency, motivating Arm’s customers to adopt their highest-performance compute intellectual property.
Arm Stock Surges 48% Following Strong Q3 Results
Thursday marked a historic milestone for Arm Stock Holdings (NASDAQ: ARM) as its stock witnessed an unprecedented surge of 48%, propelled by exceptionally robust third-quarter results and an upward revision of its full-year revenue outlook. This surge dealt a significant blow to short sellers, resulting in approximately $445 million in paper losses, according to data from S3 Partners.
Following Strong Q3 Results
The financial analytics firm highlighted the ongoing struggle of short sellers in the semiconductor sector, revealing that this year alone, they have faced over $7 billion in mark-to-market losses. Notably, a substantial portion of these losses—roughly one-fifth—occurred on Thursday alone. “Shorting the semiconductor sector has not proven to be a profitable endeavor in 2024, with short sellers experiencing a cumulative mark-to-market loss of over $7.00 billion year-to-date, representing a decline of 12.23%,” stated analysts in the report. They emphasized the severity of the losses incurred on Thursday, amounting to $1.22 billion in intraday mark-to-market losses, significantly impacting profit and loss ledgers.
Arm’s Jump Amplifies Short Sellers
The recent surge in Arm stock price has compounded the woes of short sellers in the semiconductor industry, contributing significantly to the day’s overall losses. Alongside Arm, other prominent players such as Broadcom Inc., Taiwan Semiconductor Manufacturing Co. Ltd., and Monolithic Power Systems Inc. also added to the short sellers’ financial setbacks, with each company recording daily paper losses exceeding $100 million, according to data from S3.
Losses in the Semiconductor Sector
Analysts have pointed out that short interest in Arm stock currently stands at a substantial $957 million, with approximately 12.4 million shares being shorted. This figure translates to about 1.22% of the company’s float, ranking Arm as the 14th most shorted stock within the semiconductor sector. The sharp increase in Arm’s stock value has caught short sellers off guard, exacerbating their predicament and underscoring the inherent risks involved in shorting stocks within the volatile semiconductor market. As investors grapple with the implications of Arm stock ascent, the broader semiconductor sector faces heightened uncertainty, with short sellers scrambling to recalibrate their strategies in response to the evolving market dynamics.