Potential Breakouts: Most shorted US stocks

As US equities keep posting new record highs on the back of AI growth and optimism, a growing number of investors are betting that the top is in for some stocks, building up large short interest. Does this mean a major drop for these names, or will they pop on a short squeeze?

Top Ten Most Shorted US Stocks

1. Newsmax (NMAX), 88% shorted
2. Avis Budget (CAR), 63% shorted
3. RH (RH), 56% shorted
4. CleanSpark (CLSK), 49% shorted
5. Dutch Bros (BROS), 45% shorted
6. Hertz Global (HTZ), 42% shorted
7. Fluence Energy (FLNC), 41% shorted
8. PureCycle Technology (PTC), 41% shorted
9. SoundHound AI (SOUN), 40% shorted
10. Primo Brands (PRMB), 40% shorted

US Equities Break Winning Streak on Hormuz Uncertainty

US forces conducted a second round of strikes on Iranian facilities this week, and Iran claimed to have attacked an unnamed American airbase in the region. The incidents overnight raised concerns that the fragile ceasefire might falter, as there has been little progress on ending the war since the weekend. The initial optimism in the stock market is fading fast as investors resume pricing in constrained energy supplies for an extended period. Industrials and other sectors with smaller margins and high exposure to petroleum prices have been under pressure. This has led to a rotation back into tech stocks, increasing the sector's weighting to 40% of the US market, up from 37% just two months ago. Analysts worry about this increasingly narrow and top-heavy market, as the chance grows that the Fed will tighten (either through a rate hike or a balance sheet reduction). Short interest has risen to its highest level since the GFC, following strong growth in the S&P 500 and Nasdaq Composite over the last couple of months. The benchmark index has posted 8 consecutive weeks of gains, leaving many traders wondering if the time has come for a correction. Here are some of the stocks that have garnered the most short interest lately and what might be behind investor bets:

SoundHound Performance Gets in the Way of Short Squeeze

The company that develops voices for AI agents was a darling of AI investors when the boom kicked off, but it has decoupled from the surge and is down 19% YTD. Investors have grown sceptical of the company's ability to turn its tech into consistent profits, and its price has suffered from high volatility, leading to elevated valuations. Despite posting a 52% surge in sales during Q1, it still hasn't turned a profit and has recently agreed to an all-share acquisition of LivePerson. As short interest has grown, so has the potential for a short squeeze, which has contributed to the company's volatility earlier in the year. However, the surge in revenue and drop in share price this month might have reduced the potential for a short squeeze, thereby boosting the near-term outlook.

Newsmax Back to Meme Stock?

When the alternative media company went public last year, its price surged and crashed dramatically – the classic pattern of a meme stock. It is still trading well below its IPO price, but since the start of the year, it has fluctuated by almost 100% in a single month. This wild behaviour is also characteristic of a meme stock, and its high short interest could indicate that retail traders are once again trying to induce a short squeeze as the share price is up around 50% since the start of the month. Although the company saw rising sales, the bulk of its revenue comes from cable, a medium widely seen as dying in the US. The company's lack of development of an online presence, which has fuelled growth among other alternative media firms, could help it retain its meme stock status.