From a Covid Winner to the most shorted stock in S&P
One recent news caught my attention. Moderna (MRNA), the covid vaccine maker, is currently the most shorted stock in the S&P.
Its stock price, naturally, is under immense pressure; and hit new 52-week lows last week.
Why are the bears targeting the biotech company? In the last quarter, Moderna reported a quarterly loss of $200 million, based on a revenue stream of $1 billion. [1]
With financial losses stacking up over the years (since 2023 to be exact), investors are no longer sure if the vaccine manufacturer can turn profitable any time soon. Hence the bears’ thesis for shorting the stock.
More importantly, the firm relies heavily on sales of covid-19 vaccines.
After many covid injections in the past few years, people are tired of it and no longer keen to take up more coronavirus vaccines. Ask around: “Will you have another covid vaccine?” Without hesitation, the answer is probably a firm ‘no’. Large growth is simply not there any more.
Another covid-vaccine company – Pfizer (PFE) – is also struggling. Its share price hit low long-term lows this year despite the record-high S&P.
As a matter of fact, nearly all the “Covid Winners” back in 2020-2022 are struggling massively these days.
From Moderna to Pfizer to Zoom (ZM) and Peloton (PTON) – all are showing no signs of life. For instance, Zoom is now down almost 86 percent from its 2020 peak. The same with Peloton.
I plot these four stocks below to ease the comparison of their dismal performances since 2020.
The main reason why I’m bringing this topic up is because I want to highlight the importance of “market fads”.
In stock markets, investors can turn extremely exuberance from time to time due to the unexpected arrival of a ‘new thing’ – be it a pandemic, technology or an economic concept.
From humble beginnings, prices of these concept stocks soared to stratospheric levels. Fundamentals do not matter much since investors are pricing in an extremely rosy scenario.
But once the last buyer is sucked in, these bubbly price levels start to taper. Corrections deepen, and deepen. In no time, the previously well-bought stock is cut in half.
Based on the above description, perhaps you already have one sector in mind. Yes, that’s correct – Artificial Intelligence.
This red-hot sector saw great returns being made during 2024-2025. Until October this year, most AI stocks rocketed to hugely exuberant levels. At one point, Nvidia was worth $5 trillion!
But only a few weeks later, many are struggling. Oracle (ORCL), for example, is down nearly 40 percent from its recent peak. Meta (META) and Palantir (PLTR), too, slumped by a quarter (see below).
What’s going on? Is the AI bubble over?
Uncertainty swells when an exciting sector turns down expectedly. We may be in the first phase of the AI correction.
History also tells us that a deflation of asset bubble takes time. Prices head down abruptly, rebound sharply (due to ‘bargain hunting’), and then turn south again – a zig-zag trend.
Another reason to be wary of is that fundamentals no longer seem to cheer the AI market.
Witness the recent market reaction to Nvidia’s record-breaking numbers. A 62 percent year-on-year revenue gain is still not good enough to stop investors from selling down the stock. This is telling – and worrying. [2]
In sum, no stock or sector can stay a ‘winner’ forever. A good-too-own security now could easily turn into a loser stock in no time, just like those Covid winners a few years back.
For financial prudence, perhaps it would be wise to set up some stops in these AI stocks to protect capital. If not, one could be stuck with a struggling stock far longer than anticipated – and miss out potential new emerging winners elsewhere.
