Short Interest in Chip Makers on the Rise (AMAT, ARM, NVDA)

The short interest in semiconductor makers was mixed during the latter two weeks of January. The number of shares sold short in Applied Materials

, ARM Holdings

, Micron Technology

and Texas Instruments

increased between the January 15 and January 31 settlement dates. But short interest in Advanced Micro Devices

, Broadcom

, Intel

, Marvell Technology

, Nvidia

and Qualcomm

declined during that time. The largest percentage changes in short interest in the stocks of chip makers between the January 15 and January 31 settlement dates happened to Applied Materials, ARM Holdings and Nvidia.

This equipment and services provider to the semiconductor industry saw short interest jump about 40 percent in late January to 16.73 million shares. That was the highest number of shares sold short since November and the largest daily average volume in almost a year. Short interest was less than two percent of the float. At the end of January, Applied Materials lost its chief financial officer to Qualcomm. Applied Materials has a market capitalization of more than $16 billion and a dividend yield near 2.6 percent. The long-term earnings per share (EPS) growth forecast of this S&P 500 component is about nine percent. The price-to-earnings ratio (P/E) ratio is greater than the industry average. Of the 19 analysts who follow the stock that were surveyed by Thomson/First Call, just seven recommend buying shares. The mean price target, or where the analysts expect the share price to go, is less than the current share price. That means the consensus view is that there is no potential upside at this time. The share price is more than 15 percent higher year to date and hit a new 52-week high on Monday. The stock has outperformed the Nasdaq and competitor KLA-Tencor

over the past six months.

The number of shares sold short in this multinational semiconductor and software design company rose more than 18 percent to about 5.37 million. That followed a 12 percent jump in short interest in the previous period. But the short interest is still just a little more than one percent of the float. This microprocessor designer has a market cap of about $20 billion and a dividend yield near 0.3 percent. The company saw its stock downgraded few times in January due in part to valuation. Its return on equity is about 14 percent, and the long-term EPS growth forecast is more than 22 percent. Six out of the 10 analysts polled recommend buying shares, while none recommend selling. The current share price has overrun the analysts' mean price target. But the high individual price target suggests more than 12 percent upside potential. The share price hit a new multiyear high last week, and shares are now up more than nine percent year to date. Over the past six months, the stock has outperformed Applied Materials, Nvidia and the Nasdaq.

Short interest in this maker of graphics chips for mobile devices decreased more than 24 percent to 16.66 million shares. That is the smallest number of shares sold short since November and represents less than three percent of the float. In late January, the world was still reacting to the release of Nvidia's Project Shield mobile gaming device. Nvidia also said it would build smartphones and mobile devices with its Tegra chips and sell them in emerging markets. The company has a market cap of more than $7 billion and a dividend yield near 0.8 percent. The long-term EPS growth forecast of this S&P 500 component is more than 10 percent and the P/E ratio is less than the industry average. The consensus recommendation is to hold shares, and it has been for at least three months. But analysts believe the shares have some room to grow, as their mean price target is almost 20 percent higher than the current share price. Note that the target is well less than the 52-week high from almost a year ago. Shares have traded mostly between $12 and $13 since October. Over the past six months, the stock has underperformed Qualcomm and the Nasdaq but outperformed AMD.