The thrill behind synthetic intelligence has pushed the market to all-time highs. Any firm that may tie its enterprise to the way forward for synthetic intelligence has seemingly executed effectively, promising large demand for its services or products from a brand new and untapped market.
However as valuations have soared, the brief sellers have moved in, looking for shares that may’t stay as much as the promise or hype. Brief sellers have honed in on the pc server and cloud supplier Tremendous Micro Laptop (NASDAQ: SMCI) and the telecommunications firm Lumen Applied sciences (NYSE: LUMN). Wall Avenue analysts are telling buyers to promote one and maintain the opposite. Let’s have a look.
Lumen Applied sciences runs one of many largest interconnected fiber-optic cable corporations, which powers high-speed web, cable tv, and cellphone providers for customers and companies. Lumen’s inventory has shot up about 250% this 12 months, largely as a result of perception that its fiber-optic community will function important infrastructure in connecting information facilities wanted to energy synthetic intelligence. Lumen in August reported that demand for AI has led to $5 billion of latest enterprise.
Nonetheless, brief sellers like Kerrisdale Capital have began to doubt the corporate’s valuation and the way a lot it will possibly really profit from the AI growth. In late August, Kerrisdale, in a brief report, urged that purchasing into the AI hype round Lumen is untimely and that the $5 billion of latest enterprise is “a determined bid to boost money amid deteriorating revenues and rising liquidity issues.” Moreover, Kerrisdale states that Lumen’s future gross sales alternatives don’t embrace main tech companies which can be leveraging AI however are to older, extra antiquated companies nonetheless in discovery mode in relation to AI.
Wall Avenue appears to agree with Kerrisdale. Of the eight analysts cited by TipRanks, zero are telling buyers to purchase the inventory; there are 5 holds and three promote scores. On Wall Avenue, this would possibly as effectively be a promote score. The common analyst worth goal is $4.09, which means about 38% draw back. I think a few of these maintain scores are from companies which will have a enterprise relationship with Lumen or need to hold the likelihood open.
Lumen additionally has a excessive debt of near $20 billion. Whereas the corporate is attempting to engineer a turnaround, given the inventory’s huge run and questions surrounding its position in AI, I might additionally keep away from the inventory till the corporate supplies extra proof of gross sales associated to AI.
The pc server and storage maker Tremendous Micro Laptop is probably the most shorted inventory within the S&P 500 (as of Oct. 21), with greater than 21% of the corporate’s excellent float bought brief. The corporate has additionally benefited tremendously from AI as a result of buyers consider its merchandise can be utilized as key infrastructure to retailer information that powers AI and machine studying. The inventory has ripped 68% this 12 months.
