Why Super Micro Computer's Upside Could Trigger a Short Squeeze

Entrepreneur

03-06-2025

This story originally appeared on MarketBeat
There's an often forgotten strategy that has made millionaires in the past, when it comes to the stock market, signs of interest (or lack thereof) for any stock can guide regular investors into some of the best opportunities that most others leave behind due to the simple fact that they are less understood than the typical methods employed by retail investors. This strategy involves a contrarian, high-risk, and high-reward point of view.
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More specifically, this strategy is called riding up a short squeeze, which was at the heart of the so-called 'Meme stock mania' that turned markets red hot during the cheap money and low interest rates era after the COVID-19 pandemic. The reason these stocks reached stratospheric valuations is simple: the short sellers were cornered into a forced position to close out and cut their losses.
Now, closing a short position, whether for loss-cutting or profit-taking, involves buying back the borrowed stock that was sold. This means additional buying pressure, and that leads investors to an opportunity to see outsized returns when they can catch a stock with high short interest and a reasonable theme that could put pressure on these sellers. This is exactly where shares of Super Micro Computer Inc. (NASDAQ: SMCI) come into play.
Why Super Micro Computer Stock?
Since buyers' focus is on running the stock to a choke point and triggering what's known as a 'short squeeze,' whereby short sellers are forced to close out their positions and buy the stock in the process, investors should first check what the short interest looks like for Super Micro Computer stock today.
As of May 2025, up to 20.9% of the available shares in the market for this company were held in short positions, a significant level by any measure taken in the technology sector. This is important because if the stock can maintain the upside momentum, as seen in the recent 20.9% monthly performance, then it's only a matter of time before a short squeeze is triggered.
That would mean up to $4.4 billion worth of short positions could be closed out on the buy side, a significant tailwind to help the stock return to its previous highs, which were achieved before the negative media began to put a ceiling on the company's future prospects.
Knowing that this setup could have a similar outcome to that of the meme stock mania, some institutional buyers have decided to take action, also noticing that Super Micro Computer stock trades at only 40% of its 52-week high, thereby creating a fantastic risk-to-reward ratio today.
What Short Sellers Fear Most
It's not only the $4.3 billion that institutional investors have bought in Super Micro Computer stock over the past quarter, but also the deep fundamental developments currently working in favor of the company's future financials and valuations.
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One such development is that the Saudi government has decided to partner with Super Micro Computer due to its services and equipment, which will be used to build the nation's artificial intelligence infrastructure. More than that, the power of Super Micro Computer's liquid-cooling system for data centers attracted another formidable partnership.
NVIDIA Co. (NASDAQ: NVDA) posted a stellar quarter recently, showing continued demand for the chipmaker's Blackwell product line, which is directly tied to these liquid-cooling services that Super Micro Computer offers. Before any Wall Street analysts come into play and forecast the financial impacts of these developments, here's what investors need to know.
As earnings per share (EPS) forecasts stand today, Wall Street analysts see Super Micro Computer delivering up to $0.94 in EPS by the fourth quarter of 2025, a threefold jump from today's reported $0.31 in EPS. This matters because where EPS growth goes, so does the stock price, essentially.
Faced with this wall of upside ahead of them, short sellers who decide to stay for a fight will likely be forced to the point of maximum pain, where liquidating their positions will follow (resulting in buying the stock). With this in mind, those looking to gain exposure to Super Micro Computer are sure to get a terrific bargain at today's prices.
This might also be the reason why Nehal Chokshi, an analyst at Northland Securities, placed a valuation of up to $59 per share on the stock in early May 2025. Now, despite all the trade tariffs and S&P 500 uncertainty that have occurred since then, this analyst has not changed his view on Super Micro Computer, which is also a sign of confidence.
Given the stock's decline from its current level, this valuation target would imply a potential upside of up to 44.6%. This gap is the last stand for short sellers to justify holding onto $4.4 billion worth of short positions today. If the stock validates this valuation target, that balance will likely serve as another catalyst to drive the stock even higher.
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