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(Bloomberg) — Thursday’s surge in Nvidia stock cost short sellers about $3 billion in paper losses and is an “AI-created nightmare” for bearish traders, according to an analysis by S3 Partners LLC.
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The loss in market value is another blow to contrarians who argue that Nvidia’s exorbitant valuation and speculative fever are predisposing the market to a bubble that is about to burst. The company is the third-largest short seller in the U.S., having lent and sold $18.3 billion in stock, according to S3.
“Initial price losses were inevitable for many short sellers who were looking to reduce their positions following NVDA’s earnings report,” Ihor Dusaniowski, managing director of predictive analytics at S3, said in a note. “Short sellers will probably wait a little longer to find a more favorable exit.”
Nvidia’s rise had broad benefits across the U.S. chip industry. According to S3 data, short sellers lost $4.3 billion in paper losses on semiconductor stocks in one day. Semiconductors have been the worst-performing sector for short sellers this year, with market value losses of $7.2 billion in February.
Nvidia shares continued to rise on Friday, rising as much as 4.9% in early trading in New York.
Some investors say Nvidia’s large earnings will add to their optimism that AI investing is strong and warrants a big stock market rally.
Nvidia soared 16% on Thursday, making it the third-largest company in the S&P 500 and on track to surpass a $2 trillion market cap. The Philadelphia Semiconductor Index rose nearly 65% in 2023 and is up another 13% this year.
–With assistance from Subrat Patnaik.
(Updates stock price movements at market opening.)
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