For the past three years, the market has seen a series of record highs as the AI trade continued to push the major indices higher. But amid that exponential growth, an increase in bearish bets has begun to emerge, and now it looks like they’re beginning to pay off.
The current sell-off has had an adverse and outsized impact on chipmakers and Magnificent Seven stocks. Tesla (NASDAQ: TSLA), for instance, is down around 30% year-to-date (YTD), including a decline of nearly 27% in July. Meanwhile, South Korean semiconductor manufacturer SK hynix (NASDAQ: SKHY) has slid about 14% since its July 10 NASDAQ listing.
Hims & Hers Health (NYSE: HIMS) and QXO (NYSE: QXO) illustrate the short-selling side of that bearish shift, with both ranking among the market’s most heavily shorted stocks. KLA (NASDAQ: KLAC) represents a different setup: The semiconductor equipment maker has faced a sharp valuation-driven sell-off amid concerns about chip-industry capital spending and the durability of AI demand.
Together, the three companies show how bearish pressure can build through very different channels—and why investors need to distinguish between a crowded short trade and a broader reset in expectations.
High-Beta Hims & Hers Health Has Become Short Sellers’ Target
Short sellers have made healthcare provider Hims & Hers Health one of the market’s most heavily shorted stocks.
61.4 million shares were sold short, representing 30% of the company’s public float, about $2.29 billion, as of July 15,
On July 29, the Federal Trade Commission (FTC), Utah, and California sued Hims & Hers over alleged privacy, billing, and cancellation practices, adding a new legal and regulatory risk.
In May, the company announced a $350 million private offering of convertible senior notes due June 1, 2032, which stoked fears of shareholder dilution—although it entered capped-call transactions intended to reduce potential dilution. Much of that offering is earmarked for the Eucalyptus acquisition, but more broadly, it supports the company’s long-term international expansion plan.
Hims & Hers missed analyst expectations on both revenue and earnings per share (EPS) in Q1, and the company’s elevated customer acquisition costs have increased the risk of margin compression, spooking some investors.
Over the past year, insider selling has dwarfed buying to the tune of about $87 million to just $1.17 million.
But there have been tailwinds, too.
From avoiding a lawsuit with Novo Nordisk (NYSE: NVO) and agreeing to distribute the Danish pharmaceutical company’s flagship GLP-1 drugs Ozempic and Wegovy, to the $1.15 billion acquisition of Australian telehealth platform Eucalyptus, the company has positioned itself to deliver long-term shareholder value.
The stock is up around 100% from its YTD low in late February.
For buy-and-hold investors who are looking at the bigger picture and are able to stomach the stock’s 2.35 beta, institutional ownership remains strong while HIMS financial health has been in TradeSmith’s Green Zone for more than four months. And the average 12-month price target suggests about 13% potential upside from current prices.
QXO’s Losses and Valuation Draw Heavy Short Interest
Unlike the other two stocks on this list, QXO (NYSE: QXO) is not the victim of its own success.
Shares are down nearly 31% YTDand nearly 94% from their five-year high in June 2024.
The company distributes and installs building products, serving an estimated $800 billion market.
Its operations include roofing, insulation, lumber, waterproofing products, and other construction materials.
QXO has become the target of short sellers largely due to a disconnect between its valuation and its financials.
In Q1, the company’s net loss grew to $227 million, marking the fourth consecutive quarter it operated at a loss. On an annualized basis, QXO has averaged a net loss of more than $50 million over the past five years, with profit coming in just one of those years ($28 million in 2024).
Current short interest stands at nearly 25% of the float, or about 106 million shares of the 725.3 million shares outstanding.
But a bottom may be in before short sellers are able to exit their positions. Short interest is down more than 35% month over month, and analysts’ average 12-month price target suggests as much as 120% potential upside, with the stock receiving a Moderate Buy rating.
KLA Gets Caught Up in the Semiconductor Sell-off
KLA fits squarely into the current AI sell-off. But its market cap of nearly $240 pales in comparison to the hyperscalers.
The company designs and manufactures equipment, software, and services used by chipmakers to analyze and control manufacturing processes, detect defects, measure critical dimensions, and improve yield across wafer fabrication, photomask and packaging operations.
Over the past year, the stock is up nearly 107% following a remarkable streak of earnings beats.
But that hasn’t precluded the company from being caught up in the rotation out of semiconductor names.
Since hitting its all-time high on June 30, KLAC is down nearly 40%. Unlike Hims & Hers and QXO, however, KLA’s bearish pressure has primarily manifested as a steep share-price decline rather than unusually elevated short interest.
Like its larger counterparts, KLA has suffered from overvaluation concerns and a subsequent exodus of investors who are hedging against a cyclical slowdown in semiconductor firms, fueled by the perception of unsustainable AI spending. That capital spending is KLA’s lifeblood, and if spending is curtailed, it could adversely impact share prices.
But KLA dominates its niche. The company has between 50% and 60% wafer inspection market share, and 40% to 50% metrology equipment market share. Despite the sharp sell-off, institutional ownership is robust at nearly 87%, with inflows of more than $495 million surpassing outflows of just over $70 million in the past year. While gains may slow, analysts see more than 22% potential upside over the next 12 months.
The article "Bearish Pressure Is Building Around These 3 Stocks" first appeared on MarketBeat.
