Nvidia (NASDAQ: NVDA) has been one of the most remarkable stock market performers in 2024 and has, in many ways, become emblematic of the ongoing artificial intelligence (AI) boom.
Simultaneously, the semiconductor giant’s shares have been among the assets that massively benefitted from Donald Trump’s victory in the 2024 presidential election. This is exemplified by the fact that NVDA stock is 6.38% in the last five sessions but has surged 6.48% since election day on November 5.
Despite the overall positive trajectory, a long-standing thesis has been that Nvidia’s rise is unsustainable and that the semiconductor giant is bound to experience a significant correction. A clear indicator of this opinion is the steady increase in the short volume ratio in recent sessions.
Picks for you
Nvidia shorts rocket as NVDA stock soars higher
Specifically, there was a notable uptick in the ratio between November 6 – 38.91 – and November 7 – 57.14, and the trend persisted into Friday, the latest available date, as it inched higher to 58.38.
This figure represents the highest short volume ratio in the last two weeks, and the previous peak – once Thursday data is excluded – occurred on November 4 at 50.40.
As could be expected, the uptick in the short positions taken closely mirrors NVDA’s stock market performance.
The November 4 peak occurred just as Nvidia shares began their recovery from late October lows, and the more recent surge took place parallel to what appears to be the current plateau for the semiconductor giant near the press time price of $148.72.
Why shorts against Nvidia stock may not pay off
However, this upsurge in short positions does not guarantee that NVDA stock’s remarkable rally is nearing its end. Indeed, the overall bull case appears strong as Nvidia remains at the forefront of the tech industry’s current hot sector: AI.
The semiconductor giant is not only set to begin mass production of its landmark Blackwell set, but the company’s CEO Jensen Huang recently discussed plans for annual chipset revolutions that would continuously lower the costs of training and running AI and, by extension, ensure Nvidia has a steady supply of buyers.
Why shorts against Nvidia stock might pay off
Simultaneously, multiple arguments exist for why the short positions might pay off.
It is somewhat doubtful whether the Trump victory rally is a rational event. The Republican candidate is expected to be good for the economy, business-friendly, and deregulatory in his approach.
While all of these factors do much to bolster the immediate gains, some may increase long-term risks, and others are uncertain as the specifics of Trump’s policy remain unknown.
Deregulation tends to create various issues that eventually come back to haunt the corporations and harm consumers – price gouging, for example, can be excellent for short-term profits but can eventually price products out of existence.
Additionally, more leeway for companies can sometimes equal providing firms with more rope to hang themselves. Boeing’s (NYSE: BA) ability to steadily erode its quality control mechanisms without much pushback is a prime example, as the company turned from an American mainstay to a deeply troubled corporation in 2024.
Similarly, some of Trump’s plans to bolster the American economy could harm major firms. Nvidia, like the rest of big tech, is at risk of increased tariffs due to its reliance on global supply chains remaining well and truly open.
Such a situation could lead to higher prices for consumers – either directly or through intermediaries – unless the protectionist measures are applied very selectively. When paired with a generally uncertain attitude toward AI among consumers, it could eventually lead to a major pullback for Nvidia.
Along with the risks stemming from the reliance on the continuation of the AI boom, NVDA stock may also be at risk of contagion emanating from the downfall of one of its major clients – Super Micro Computer (NASDAQ: SMCI) – as hinted by the founder of Hindenburg Research.
Why the November stock market rally has a leg to stand on in 2025
Elsewhere, while the trigger for the latest rally may not have been entirely rational, one of its key drivers remains at play: provided the FED’s expectations that inflation is coming down, the investment climate of 2025 is set to be far more favorable than in 2024 as interest rates continue to be reduced.
Such a consideration is particularly pointed considering many individual stocks – including Nvidia itself – and the stock market more broadly have seen multiple new all-time highs (ATH) in the current year, despite early forecasts by some finance gurus predicting a recession amidst tight financial conditions.
Featured image via Shutterstock
