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Hedge funds afraid to short SMCI stock, so they are shorting this one: Mizuho

Published 05/20/2024, 10:24 AM
© Reuters

According to analysts at Mizuho, hedge funds are increasingly turning their attention to one technology stock as a target for short-selling, driven by skepticism around its recent stock performance and growth projections. 

Mizuho desk analysts said Dell Technologies (NYSE:DELL) has become one of the most debated stocks in the tech sector, primarily due to its purported growth from AI servers. 

Despite a 26% rise in May, largely attributed to a short squeeze, Mizuho says that many hedge funds view this surge with suspicion, labeling Dell as an "AI faker."

The analysts explain that these funds are hesitant to short SMCI, which is seen as a more robust player in the AI server market. 

Instead, they are focusing on Dell, questioning the sustainability and profitability of its AI-related growth. Analysts argue that Dell's AI server demand could be dilutive to its gross margins, casting doubt on its long-term viability.

"The hate across most HFs I speak with is high and at or above that for AMD (NASDAQ:AMD)," revealed Mizuho. "Most think the current 20x P/E is a total joke/sham for a hardware company growing mid singles (at best) on the top line with GMs low 20s and at risk from dilutive AI server sales."

Currently, only 2.6% of Dell's float is short, but the sentiment among hedge funds is overwhelmingly negative.

"As a DELL bull since last earnings print, I am worried that quarter/guide could be a 'sell the news' as [the] stock run has raised buyside expectations a lot in just the past 2-3 weeks," added Mizuho. As a result, Mizuho feels a lot of the quarter and positive Dell World commentary will likely be baked into the stock.

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