Super Micro Computer Inc (SMCI) is announcing its earnings results tomorrow, 11/05/24, which may take a back seat to its recent issues. SMCI has delayed its recent filings; its auditor, EY, resigned due to issues with SMCI’s “management’s and the Audit Committee’s representations;” the Justice Department is continuing its ongoing investigation; and there is a possibility of delisting from the Nasdaq or removal from the S&P 500.

SMCI is the third largest short in the Technology, Hardware & Equipment Industry Group and has the second largest amount of new short selling over the last thirty days behind Cisco Systems (CSCO).

Short selling has been rampant in 2024 with 57.9 billion shares of new short selling, worth $2.5 billion, this year or a +135% increase in total shares shorted. Over the last thirty days we’ve seen 3.9 million shares shorted, worth $127 million, a +4% increase in total shares shorted.

SMCI short selling has been a profitable trade in 2024 but this has not been a year long winner. SMCI hit its yearly high of $91/share on 7/12 and shorts were down $3.3 billion in mark-to-market losses, a -102% return for six and a half months. But since 7/12 shorts are up +$4.6 billion in mark-to-market profits, a +113% return in less than four months. For the year SMCI shorts are up +$1.3 billion in year-to-date mark-to-market profits, up +35% for the year.

AI infrastructure demand will continue to grow but SMCI’s percentage of that increased demand may change. Tomorrow’s earnings announcement may continue its downward price slide which would increase short selling in the stock if its sales outlook is cut. But if SMCI’s sales outlook is positive we may see a pop in its tock price and short sellers looking to trim its positions and realize at least some of the outsized mark-to-market profits they earned over the last several months.

SMCI’s results are making the stock a two-way trade as is seen in its options trading with slightly out of the money calls and puts and more way out of the money calls and puts the most traded securities. Tomorrow’s numbers will create a lot of winners and losers in the options market and we will probably be seeing a change in SMCI’s share shorted with a spike in short selling or short covering demanding on the earnings results and forward estimates.

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