Arm Holdings PLC experienced its best day in history on Thursday as its stock surged by 48%, causing significant losses for short sellers.
According to S3 Partners, short sellers incurred paper losses of $445 million as Arm’s stock skyrocketed after the release of its earnings report. This serves as a clear example of how shorting semiconductor stocks has been an unprofitable strategy this year, as stated by S3’s Ihor Dusaniwsky in a recent report.
Dusaniwsky further highlighted that bearish bets against the sector have resulted in losses exceeding $7 billion in mark-to-market value so far this year. Notably, one-fifth of these losses were accumulated on Thursday alone.
While Arm accounted for a substantial portion of the chip sector’s losses on Thursday, companies such as Broadcom Inc., Taiwan Semiconductor Manufacturing Co. Ltd., and Monolithic Power Systems Inc. also experienced daily losses exceeding $100 million, according to S3.
Understanding that Arm has a short interest of $957 million, with approximately 12.4 million shares shorted, representing approximately 1.22% of the float, Dusaniwsky pointed out that Arm holds the 14th position in terms of short interest within the semiconductor sector.
The recent short-selling trend in ARM is expected to undergo a reversal in 2024, as short sellers find themselves squeezed out of their positions. This insight comes from Dusaniwsky, the managing director of predictive analytics at S3. As today’s rally prompts short covering, we can anticipate this trend to continue for the next few days. Short sellers will be on the lookout for a slight rebound to recoup some of their mark-to-market losses by trimming their exposure.
ARM, a leading chip designer, surprised investors with its impressive Q4 results, surpassing expectations. These results not only demonstrate the company’s new architecture gaining momentum but also highlight its success in the artificial intelligence sphere.
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The Drive for Increased Compute Capability and Power Efficiency
The rise and increased adoption of accelerated compute and AI workloads across various platforms, including data centers, edge devices, and endpoints, are creating a demand for greater compute capability and power efficiency per device. This demand has motivated ARM’s customers to embrace their highest-performance compute intellectual property. Harlan Sur, from JPMorgan, emphasized this trend in a note to clients.
It is clear that ARM is well-positioned to meet the evolving needs of the tech industry, as their architecture continues to gain traction and their customers drive forward in the age of accelerated compute and AI workloads.