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Nvidia Corp.’s massive 2016 gains took a bit of a hit Wednesday as a famed short seller targeted the stock, which had already seen a dramatic rise in bets against it.
Citron Research, a short seller known for its 2015 call on Valeant Pharmaceuticals International Inc. VRX, +0.99% tweeted about Nvidia NVDA, -6.88% on Wednesday, outlining six reasons it believes the stock is overpriced.
Citron readers know we have long been fans of $NVDA,but now the mkt is disregarding headwinds. In 2017 we will see $NVDA head back to $90 pic.twitter.com/n4U7f6eV7G
— Citron Research (@CitronResearch) December 28, 2016
Nvidia has been the biggest gainer in the S&P 500 index SPX, -0.84% so far this year, rising 256% through Tuesday and hitting yet another record intraday high early in Wednesday’s session, touching $119.93. The Silicon Valley chip company has benefited from a move toward technologies many believe will be important in the coming years, namely machine learning and autonomous cars.
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However, shares dropped more than 6% Wednesday after Citron pointed out that most of Nvidia’s actual financial gains this year came from its more established business, graphics chips for gaming, as well as chips made for data-center servers. The market for server chips is dominated by Intel Corp. INTC, -1.19% and Citron noted that another competitor, Advanced Micro Devices Inc. AMD, -4.31% has new chips on the way for servers as well as gaming.
Short sellers have piled into Nvidia as the stock has catapulted higher in the second half of 2016. Nasdaq Inc.’s NDAQ, -0.28% reports on short interest in Nvidia show that the number of shares borrowed by short sellers jumped more than 60% between late July and mid-December, to a total of 71.4 million, about 14% of Nvidia shares available.
Matt Unterman, a director at S3 Partners, a financial-analytics firm focused on real-time short selling activity, told MarketWatch on Wednesday that many short sellers had been covering their position during the past week as Nvidia continued to run higher, but that activity seemed to stop with Citron’s report.
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“As of today, on the back of this Citron Research report, we’re seeing renewed shorting activity, so a reversal of the covers,” Unterman said.
Citron said that it expects Nvidia to fall back to $90 in 2017, a level it just surpassed for the first time in November. Despite recent price-target hikes, that isn’t far off the average analyst view: The average price target among 32 analysts tracked by FactSet is $93.37, more than 20% lower than Nvidia’s closing price on Tuesday.
