Nvidia (NASDAQ: NVDA) has emerged as one of the standout stock market performers of 2024 and has, in numerous ways, become a symbol of the current boom in artificial intelligence (AI).
At the same time, the semiconductor powerhouse’s shares have notably prospered following Donald Trump’s victory in the 2024 presidential election. This is highlighted by the increase of 6.38% in NVDA stock over the past five trading sessions and a notable surge of 6.48% since election day on November 5.
Nevertheless, despite this upward trend, a prevailing belief exists that Nvidia’s ascent is not sustainable and that the semiconductor leader may soon undergo a significant correction. This perspective is underscored by the consistent rise in the short volume ratio observed in recent sessions.
Nvidia shorts soar as NVDA stock ascends
There was a marked increase in the short volume ratio from November 6, which stood at 38.91, to November 7, where it reached 57.14. This upward trend continued through to Friday, the most recent date available, climbing to 58.38.
This figure represents the highest short volume ratio recorded over the last two weeks, with the previous high occurring on November 4 at 50.40, which is notable when Thursday’s data is excluded.
As expected, the rise in short positions closely correlates with NVDA’s stock market performance.
The peak observed on November 4 coincided with the recovery of Nvidia shares from their late October lows, while the recent surge aligns with what seems to be a plateau for the semiconductor giant, currently priced at $148.72.
Why shorts against Nvidia stock may not succeed
However, the increase in short positions does not necessarily indicate that NVDA’s impressive rally is on the verge of concluding. In fact, the bull case for Nvidia remains compelling as the company continues to lead in the tech industry’s burgeoning sector: AI.
Nvidia is not only poised to commence mass production of its innovative Blackwell series but CEO Jensen Huang has also recently shared plans for annual advancements in chipsets aimed at significantly reducing the expenses linked to training and deploying AI, thereby ensuring a reliable customer base for Nvidia.
Reasons shorts against Nvidia stock might succeed
Conversely, there are various reasons suggesting that short positions could prove successful.
Questions linger about whether the rally following Trump’s victory is a fundamentally sound reaction. The Republican candidate is anticipated to be favorable for the economy by promoting business-friendly and deregulating policies.
While these factors significantly contribute to short-term advantages, they may also introduce long-term risks and uncertainties, especially given the haziness surrounding Trump’s specific policy initiatives.
Deregulation often leads to various challenges that may resurface to affect corporations negatively and harm consumers. Price gouging, for instance, might enhance short-term profits but could eventually make products unaffordable.
Furthermore, increased corporate freedoms can sometimes grant companies the latitude needed to put their own operations in jeopardy. Boeing’s (NYSE: BA) gradual decline in quality control, leading to its troubling state in 2024, serves as a pertinent example.
Likewise, some of Trump’s proposals designed to strengthen the American economy could inadvertently impact major companies negatively. Nvidia, similar to other large tech firms, faces potential risks from heightened tariffs due to its dependence on global supply chains that must remain fully functional.
Such circumstances could drive prices up for consumers, whether directly or through intermediaries, unless protective measures are implemented judiciously. Coupled with a general uncertainty surrounding AI among consumers, this could trigger a significant downturn for Nvidia.
Beyond the risks associated with the reliance on the ongoing AI surge, NVDA stock might also face contagion effects stemming from the decline of one of its principal clients, Super Micro Computer (NASDAQ: SMCI), as suggested by Hindenburg Research’s founder.
Why the November stock market rally has potential strength in 2025
In other news, while the catalyst for the recent rally may not be entirely rational, a key driver continues to operate: assuming the Federal Reserve’s projections of declining inflation come to fruition, the investment landscape for 2025 is likely to be significantly more favorable than that of 2024 as interest rates are expected to decrease.
This insight is particularly relevant considering that several individual stocks – including Nvidia itself – and the broader stock market have achieved multiple new all-time highs (ATH) this year, despite earlier forecasts by some financial experts predicting a recession in light of stringent financial conditions.
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