Market Overview

Short Sellers Pile on ARM Holdings and Nvidia

The largest percentage swings in short interest in semiconductor stocks between the March 15 and March 28 settlement dates happened to KLA-Tencor (NASDAQ: KLAC), which retreated more than 19 percent, as well as to ARM Holdings (NASDAQ: ARMH) and Nvidia (NASDAQ: NVDA), which jumped more than 15 percent and more than 20 percent, respectively.

The number of shares sold short in Intel (NASDAQ: INTC) also grew somewhat during that period.

But Advanced Micro Devices (NYSE: AMD), Applied Materials (NASDAQ: AMAT), Broadcom (NASDAQ: BRCM), Marvell Technology (NASDAQ: MRVL), Micron Technology (NASDAQ: MU), Qualcomm (NASDAQ: QCOM) and Texas Instruments (NASDAQ: TXN) saw declines in the number of shares sold short in the final weeks of March.

ARM Holdings

The number of shares sold short in this multinational semiconductor and software design company grew more than 15 percent to about 3.07 million, taking back some of a 42 percent drop in the previous period. The short interest remains less than one percent of the float, and days to cover is more than two.

This microprocessor designer has a market capitalization of less than $29 billion and a dividend yield of about 0.6 percent. In March, ARM Holdings announced the impending departure of CEO Warren East, who will be replaced by the current president. The company's return on equity is about 14 percent, and the long-term earnings per share (EPS) growth forecast is almost 22 percent.

Six of the 10 analysts who follow the stock and were surveyed by Thomson/First Call recommend buying shares. None recommend selling them. The analysts' mean price target, or where they expect the share price to go, suggests about six percent upside potential. But note that the mean target is less than the multiyear high reached back in March.

Shares have traded mostly between $40 and $44 since early January. But the share price is up more than 48 percent from six months ago. In that time, the stock has outperformed competitors Applied Materials and Nvidia, as well as the Nasdaq.

KLA-Tencor

This Milpitas, California-based company saw short interest pull back more than 19 percent in late March to 4.23 million shares. That was the smallest number of shares sold short in at least a year. The short interest has been falling since mid-February and now is about 2.6 percent of the float.

KLA-Tencor is expected to report earnings and revenue declines from the same quarter a year ago when it shares results later this month. The company has a market cap of less than $9 billion and a dividend yield near 3.1 percent. The long-term EPS growth forecast is about 10 percent. The operating margin is greater than the industry average, and the return on equity is about 23 percent.

Of the 27 analysts who were surveyed, all but seven recommend buying shares, 10 of them rating the stock at Strong Buy. They believe the shares have some room to run, as their mean price target is more than nine percent higher than the current share price. But that target is shy of the 52-week high.

The share price retreated more than six percent in latter March but has started to recover in the past week. Over the past six months, the stock has outperformed the Nasdaq and the Dow Jones Industrial Average, but underperformed Applied Materials.

Nvidia

Short interest in this Santa Clara, California-based company swelled more than 20 percent in the final weeks of March to 26.06 million shares, on top of a more than 30 percent gain in the previous period. The end of the month figure is the largest number of shares sold short in the past year, and it represents more than four percent of the float.

In late March, Nvidia launched a virtual graphics server. An analyst predicted $1 billion in revenue from Nvidia's currently unprofitable Tegra product line. The company has a market cap of almost $8 billion and a dividend yield near 2.4 percent. The long-term EPS growth forecast of this S&P 500 component is more than 10 percent, and the price-to-earnings ratio (P/E) ratio is less than the industry average.

The consensus recommendation of the 33 analysts polled is to hold shares, and it has been for at least three months. But they believe the shares have some room to grow, as their mean price target is more than 11 percent higher than the current share price. However, that target is less than the 52-week high

Shares have traded mostly between $12 and $13 since last October, and the share price is almost 11 percent lower than a year ago. Over the past six months, the stock has underperformed competitor Qualcomm but outperformed AMD.

Posted-In: Advanced Micro Devices AMD applied materials ARM Holdings broadcom IntelShort Ideas Trading Ideas Best of Benzinga

 

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