Short-selling is an interesting part of the stock market that can be dangerous and even controversial. Investors selling shares short are hoping that the price of certain stocks falls so that they can make a profit.
Short squeezes are examples of how short selling can go insanely wrong for those who partake. Still, short selling plays a key role in a healthy market. It allows bearish investors to balance the potential overexuberance of others.
Short interest as a percentage of shares outstanding is key for grasping bearish sentiment. It measures the total percentage of the company’s outstanding shares that are currently sold short. A higher number indicates a larger bet is being placed on shares falling.
Below, I’ll detail two well-known stocks that have among the largest short-interest percentages in the market. I’ll explain why some investors are so pessimistic about these firms and provide counterarguments where appropriate.
NuScale Is the First to Achieve NRC SMR Design Certification
NuScale Power (NYSE: SMR) is a high-flying stock with a big-time short interest percentage of 21%. The company’s shares have achieved an incredible return of 610% over the past 52 weeks as of the Feb. 24 close. Despite generating just $7 million in revenue over the last 12 months, the stock’s meteoric rise is due to expectations about what it could become.
[content-module:CompanyOverview|NYSE: SMR]NuScale makes small nuclear reactors (SMRs). Nuclear energy is the energy type of choice for hyperscaler companies looking to power their data centers to advance the AI revolution.
SMRs could offer a cheaper and faster-to-build source of nuclear energy compared to large nuclear reactors that can take a decade to build. However, the economic viability of this technology is still questionable, leading to high short interest.
NuScale notably had to cancel its project to build the first SMR in the United States due to costs running way over expectations. Still, NuScale is the first and only company to receive an SMR design certification from the U.S. Nuclear Regulatory Commission (NRC). It hopes to gain approval for another design in mid-2025.
Additionally, its SMRs are the “only U.S. NRC-approved technology with reactors already in production." If they can work out installation issues, these factors will give NuScale a significant advantage in terms of time-to-deployment.
Hims & Hers: Semaglutide Shortage Ends, Leaving Future Uncertain
Nearly 27% of Hims & Hers Health (NYSE: HIMS) shares are sold short, and these sellers recently got exactly what they were hoping for. Hims has been making a ton of money through its drug-compounding strategy in the weight loss market.
With insatiable consumer demand for the weight loss drugs made by Eli Lilly and Company (NYSE: LLY) and Novo Nordisk A/S (NYSE: NVO), the two firms haven’t been able to keep production high enough.
[content-module:CompanyOverview|NYSE: HIMS]This resulted in the drugs tirzepatide and semaglutide ending up on the Food and Drug Administration’s (FDA) shortage list. When this is the case, legal exemptions allow other companies to sell these drugs without violating the law.
In May 2024, Hims started selling compounded semaglutide due to Novo’s shortage.
This allowed the company to increase revenue by 69% in 2024. However, Novo had been investing billions to ramp up supply. On Feb. 21, the FDA announced that it had removed semaglutide from its shortage list. Now, Hims is no longer legally allowed to sell its compounded version after May 22.
This was the event many short sellers were betting on. Shares fell nearly 26% on the same day. On Feb. 24, shares fell another 18% in after-hours trading post-earnings.
At this point, it is hard to offer much in the way of counterarguments to what short sellers were betting on. However, Hims argues that it can still sell personalized formulations of semaglutide.
This would involve altering dosage levels and titration schedules. Data on Novo’s developmental weight loss drug, Cagrisema, show that personalizing dosage and titration could offer significant benefits. Still, Hims is likely to face significant legal scrutiny if it attempts to do this.
The company also saw strong revenue growth of 43% when excluding sales from its weight-loss drug. This shows the firm is far from totally reliant on weight-loss drug sales to rapidly grow its business.
Even if it can't sell semaglutide going forward, its entry into this space has massively boosted brand awareness and subscriber numbers. The company can use this to push sales of other products. Still, it is likely best to wait for the dust around this stock to settle right now.
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