SAN FRANCISCO – Short sellers betting against red-hot AI stock Super Micro Computer Inc. scored over $1.2 billion in paper profits Friday as the semiconductor company’s shares plummeted 20%, marking its biggest single-day drop since August.
The stunning reversal provided much-needed relief for the contrarian investors, who have suffered nearly $5 billion in paper losses over the past year as Super Micro’s stock surged by more than 760% on euphoria around artificial intelligence.
If you’ve been betting against Super Micro during this rally, you’re likely feeling an immense amount of pain,” said Michael Sansoterra, chief investment officer at Silvant Capital Management. “Friday’s plunge was a rare victory for the shorts in what has been a brutal stretch.”
Despite the gains, short sellers remain committed to their positions. In just the last 30 days, they have increased bets against the AI darling by 12%, piling an additional $623 million into short positions, according to data analytics firm S3 Partners.
Friday’s nosedive halted a blistering rally that had seen Super Micro’s stock price skyrocket 246% in 2023 and 183% so far this year. The San Jose, California company’s meteoric ascent resembled the social media-fueled gains of meme stocks like AMC Entertainment and GameStop in 2021.
All of a sudden it kind of got this meme stock feel,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. “Super Micro has some good things going for it in terms of underlying growth, but it also got pumped up by the broader AI wave. Then you start to see the shorts build up betting on a reversal, because they’ve seen this movie before.”
Signs of euphoria had been building lately. The cost of bullish call options soared, with the one-month call skew hitting its highest level in over a year earlier this week. But Friday’s plunge inverted that trend, sinking the value of downside put options and signaling waning enthusiasm among traders speculating on further near-term gains.
Despite the sell-off, Mulberry noted Super Micro does have attractive fundamentals. In particular, the company remains well-positioned to capitalize on soaring demand for AI chips and servers driven by the global AI boom.
CEO Charles Liang has said Super Micro aims to grow sales to $25 billion a year in the medium term, up from just $4.7 billion in fiscal 2022. But he has cautioned the company needs to secure a steady supply of semiconductors to meet that goal, highlighting the ongoing chip shortage as a key challenge.
The semiconductor supply chain remains tight, so access to adequate inventory is an issue for the whole industry,” said Liang in a recent interview. “All the big hyperscalers and cloud providers want these AI chips and servers. We have to stay nimble and creative in sourcing components.”
The pullback comes as investors closely watch developments in Super Micro’s legal battle with fierce rival AMD. The two have traded lawsuits accusing each other of taking sensitive competitive information. Super Micro is also awaiting an administrative law judge’s ruling in a separate patent fight with AMD.
Despite the recent volatility, Super Micro has been one of the biggest stock market winners of the AI boom. Retail investors have piled into the stock, betting the company will be a key beneficiary as businesses and governments around the world build out AI infrastructure, training systems, and product offerings.
Sansoterra said the shorts are essentially betting that this optimism has gotten ahead of fundamentals.
At the end of the day, Super Micro is still a niche server provider that lags behind bigger players like Dell and Hewlett Packard Enterprise in market share,” said Sansoterra. “The frothiness around AI has elevated expectations to unsustainably high levels. That creates opportunity for short sellers looking to profit when a reality check hits the stock.”
Whether Friday’s drop represents the start of a deeper correction, or just a minor speed bump in Super Micro‘s ascent, remains to be seen. But for short sellers reeling from paper losses, it offered a glimmer of hope that the tides may finally be turning in their favor.
