Short Sellers Could be Targeting AI Stocks
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Short Sellers Could be Targeting AI Stocks

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There is rising speculation that short sellers could be targeting AI stocks.

As the AI hype fuels the S&P 500 Index (SPX) surge, driven by AI-centric companies like Nvidia (NVDA), the index has risen over 15% year-to-date. However, there are now speculations about whether the AI-fueled rally has led some investors to bet against a few of these companies, like Super Micro Computer (SMCI) and Lumen Technologies (LUMN).

Short Sellers May Be Targeting AI Stocks

According to a Bloomberg report, short sellers may be targeting SMCI and LUMN, whose shares have soared over 250% at different points this year. Short selling involves borrowing a stock whose price is estimated to fall and selling it at the current price. Later, the short seller buys this stock back at a lower price, returns the borrowed stock to the broker, and profits from the difference.

In fact, over the past month, SMCI and Symbotic (SYM) have seen their stock prices plunge by more than 20% and 15%, respectively. Now let us take a look at what caused the declines for SMCI and LUMN.

SMCI Plunged after the Hindenburg Report

Super Micro, which produces AI servers, plummeted after activist short seller Hindenburg Research published a report highlighting “glaring accounting red flags” and igniting a corporate governance crisis. Following the report, the company announced it needed more time to assess internal controls over financial reporting, leading investors to sell their shares.

LUMN Suffered the Same Fate

Similarly, Lumen Technologies suffered when Kerrisdale Capital, an investment firm announced on social media platform X that it was shorting the stock due to “worsening sales and margin trends amid a staggering debt burden.” The fiber networking company’s shares, which had surged from around $1 to over $6.50 in July, dropped sharply on the news and are now trading around $5.

Investors Question the Valuation of AI Companies

The recent pullback in these AI stocks and increased scrutiny of their valuations suggest that investors are starting to question the long-term value of these companies and their prospects to stay in the AI race.

Which Is the Best Artificial Intelligence Stock?

We used TipRanks’ Stock Comparison tool for Best Artificial Intelligence stocks and filtered stocks that have earned a Strong Buy consensus rating from Wall Street analysts. Based on the results below, these are the best AI stocks to buy, according to analysts.

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