When a stock is heavily shorted, it can be a warning sign for investors.
However, if these stocks defy expectations, short covering can be the launching pad for a strong run
Let’s look at two stocks with heavy short interest I’d consider buying: artificial intelligence (AI) voice company SoundHound AI (NASDAQ: SOUN) and luxury furniture brand RH (NYSE: RH). One I’d avoid is Super Micro Computer (NASDAQ: SMCI). Consider buying SoundHound AI stock With over 40% short interest, SoundHound AI is one of the most heavily shorted stocks in the market.
Valuation could be one reason why, with the stock trading at a forward price-to-sales (P/S) multiple of 10 times 2027 analyst estimates. However, the bigger reason is likely its pending merger with LivePerson. LivePerson is a distressed company with heavy debt, so the deal carries significant risks.