Short sellers appear to be increasing their bets against the semiconductor industry amid a push by the US government to bolster the domestic industry and reduce America's reliance on foreign nations for these materials.

As of mid-May, short interest in semiconductor materials and equipment stocks has risen 77 basis points year over year to 4.52%, according to the latest S&P Global Market Intelligence data. Short interest in semiconductor stocks was at 3.78% in mid-May, up 38 basis points in a year.

The increase in short interest in the industry came after President Joe Biden signed the CHIPS Act in August 2022, which includes $39 billion in manufacturing incentives for US semiconductor facilities.

Short interest measures the percentage of outstanding shares of a given company or industry held by short sellers.

Chipmaker short bets

Atomera Inc. was the most shorted semiconductor and semiconductor materials and equipment stock as of mid-May, with 21.65% short interest.

The move to short semiconductor stocks has not impacted the industry's largest stocks, however. The top 10 semiconductor stocks by market cap had an average short interest of just 1.61% as of mid-May, and only two of the 20 largest semiconductor stocks, ON Semiconductor Corp. and Enphase Energy Inc., had short interest of over 5%, the latest data shows.

NVIDIA Corp., which has a market cap of more than $971 billion as of June 2 and is by far the largest semiconductor stock, had short interest of just 1.17% as of mid-May, down slightly from 1.21% a year ago, according to Market Intelligence data. NVIDIA's stock is up roughly 176% since the start of 2023.

Big picture

Overall short interest was up slightly from mid-April to mid-May, with every sector increasing except healthcare, real estate and energy.

Consumer discretionary remained the most shorted sector, with 5.74% short interest, as sellers continued to bet that persistently high inflation would continue to quell consumer demand.

Most-shorted stocks

Exela Technologies Inc. led all stocks with 229.07% short interest as of mid-May, a significant increase from the end of April, when short interest in the business process automation company was just 2.61%.

Short interest in a company typically exceeds 100% when a short seller borrows stock and sells it into the market, and the buyer then re-lends it. On May 12, Exela announced a 1-for-200 reverse stock split of the company's common shares.