Chip short sellers are sitting on $32 billion in paper gains as stocks slide

Over the past seven days, short sellers wagering against semiconductor stocks have racked up roughly $32 billion in paper profits on a gross basis, according to S3 Partners data compiled by Bloomberg.

The Philadelphia Semiconductor Index, known as the SOX, has fallen over 12% in that span. It is on track Friday for an eighth straight losing session, which would equal the index's longest run of declines since 2006, according to Bloomberg.

The S&P 500 is heading for a 1.7% weekly loss, its worst week since June, according to Bloomberg. The Nasdaq $NDAQ 100 is headed for a 5% drop by the end of this week. Concerns over rising borrowing costs, lofty valuations and heavy AI infrastructure outlays are dragging down chipmakers and the wider market, according to Bloomberg.

Twenty of the SOX’s 30 components have slid by more than 10% since the rout started. Coherent stock has dropped close to 30%. Astera Labs, Macom Technology Solutions Holdings and Credo Technology Group Holding stock have each lost over 20% in the eight-day slide.

“The run up in chips was very aggressive so invariably there was going to be some consolidation or pull back,” said Dec Mullarkey, managing director of investment strategy and asset allocation at SLC Management, according to Bloomberg.

Short sellers have booked paper profits outside the chip sector as well. CoreWeave stock is headed for a weekly decline of more than 20% after the company's debt fell to levels usually associated with financial distress, according to Bloomberg. Traders betting against CoreWeave stock are positioned for gains of over $1 billion on a mark-to-market basis by the end of the week.

Some of the short positions currently open in CoreWeave stem from convertible bond arbitrage trades and not from purely bearish wagers, according to Bloomberg, which cited Matthew Unterman, a managing director at S3.

The reversal follows a steep climb. The SOX had more than doubled between the end of March and a June record high, according to Bloomberg, which put the added market value at roughly $6.5 trillion.