Among the Market’s Most Shorted: 2 Firms With +40% Short Interest
In a market increasingly driven by speculation and sentiment, two stocks have emerged as battlegrounds for bearish investors: Wolfspeed (NYSE: WOLF) and Kohl’s (NYSE: KSS). Both names currently rank among the most heavily shorted on Wall Street, with short interest exceeding a staggering 40% of their floated shares.
This intense pessimism reflects deep concerns about their financial health and leadership, but it also sets the stage for dramatic short squeezes, should either company defy expectations and show signs of a turnaround..
WOLF: On the Verge of Bankruptcy, May Need Trump Lifeline to Keep the Lights On
Wolfspeed is a chip company among the most shorted stocks on the market. According to MarketBeat data, investors sold short over 45% of Wolfspeed’s floated shares as of May 15, marking the highest level in its history. A recent report from the Wall Street Journal (WSJ) claimed that Wolfspeed is preparing to file for bankruptcy.
The company reportedly rejected proposals from its creditors to restructure its $6.5 billion in debt. Wolfspeed shares plummeted over 59% on May 21 after the news broke.
The company’s ability to repay its debt and continue operating hinges significantly on its ability to receive $750 million in CHIPS Act funding. However, this funding was just a proposal from the U.S. Department of Commerce under the Biden Administration. It was never officially granted.
Now, President Trump is making efforts to significantly rework the CHIPS Act, greatly jeopardizing whether Wolfspeed will ever actually receive the funds. According to Jeff Koch at SemiAnalysis, companies that are not involved in leading-edge chips or AI are particularly at risk of losing their subsidies.
Wolfspeed is not directly involved in AI, making chips for automotive, industrial, and other use cases. However, it does focus on silicon carbide and gallium nitride-based chips, often considered “next-generation” semiconductor materials. It also manufactures its chips in the United States, something President Trump would likely take into account.
Koch believes Wolfspeed could still receive tax credits, even if it doesn’t receive the CHIPS Act grants. The company plans to apply for $600 million worth of tax credit refunds after June 30. Investors continue to trade Wolfspeed stock, possibly in hopes that some type of last-ditch effort can help save the firm.
The company’s huge short interest makes it a squeeze candidate, but it is possible the company could file for bankruptcy any day now. Analysts at TD Cowen recently suspended their stock coverage due to the "increasing likelihood of financial restructuring."
Turmoil Embroils Kohl’s, But Some Analysts See a Path Forward
Next is the retail company Kohl's. According to MarketBeat data, investors sold short just under 54% of Kohl’s floated shares as of May 15. This figure has been climbing for some time now, reaching its highest level ever. The company’s extremely high short interest makes sense. Kohl’s hasn’t posted a quarter of positive year-over-year sales growth since calendar Q4 2021.
Even in that quarter, it's hard to give the company a lot of credit. Easy comparisons versus 2020 due to low sales during the COVID pandemic likely played a big role in creating that sales growth aberration.
The company also recently ousted its Chief Executive Officer (CEO), Ashley Buchanan. However, the firing wasn’t just due to unsatisfactory performance. Kohl’s found that its CEO had been directing millions of dollars’ worth of business to someone with whom they had a romantic relationship.
Buchanan was Kohl’s third CEO in as many years, highlighting the massive amount of dysfunction at the company. Overall, Kohl’s is in the midst of a huge turnaround effort.
Still, at least some analysts are not entirely down on the stock after the firm’s May 29 earnings report. Analysts at Baird recently lifted their price target on Kohl's to $9. This implies shares could rise 10% from their June 2 closing price of $8.16. Analysts at Telsey Advisory Group also reiterated their $9 target after Kohl’s reported earnings.
If the stock reached these targets, it is possible it could rocket much higher through the triggering of a short squeeze. However, analysts at Barclays are siding with the bears, placing a $5 price target on the stock.
Analysts at Goldman Sachs also reiterated their Sell rating.
Overall, Wolfspeed and Kohl's are two highly risky and speculative stocks. This is particularly true for Wolfspeed. The prospects of climbing out of the hole it has dug are becoming increasingly unrealistic.
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