When the hottest stock in the S&P 500 is also one that investors are betting heavily against, there’s a lot of pain to go around.
Such was the case in 2016, when chip-maker Nvidia surged 224%. It also had the highest short interest among S&P 500 stocks with market capitalizations of more than $50 billion, according to Bespoke Investment Group.
A rough estimate puts the losses for short sellers at about $4.4 billion last year, according to S3 Partners, a financial analytics firm. The shorts made back about $131 million last week, with the stock falling 4.7% in the first three days of the year, but that’s little solace after such big losses last year. Plus, the stock is up another 3.9% in early going on Monday.
To bet against a company through a short sale, investors usually borrow shares from a broker or investor and sell them. The short sellers then buy the stock back later to return to the lender, hoping the price will have fallen and they can collect the difference. If the stock rises, they eat the difference, as happened when battered Nvidia short sellers cashed out after the stock’s massive rally.
The semiconductor company has long been a target of short sellers, but the persistence of their bets in the face of a stock moving so forcefully against them stands out. There was about $1.5 billion of short interest at the start of last year, and it climbed steadily to $7.1 billion in mid-December. That type of behavior is “extremely rare,” according to Ihor Dusaniwsky, head of research at S3 Partners....MORE