Although the benchmark equity indices started the Monday session softly due to brewing recession fears, a few enterprises within the artificial intelligence (AI) sector saw no such hesitation. In particular, shares of Guardforce AI (NASDAQ:GFAI) jumped about 27% in the early afternoon hours. Short-squeeze contrarians may be targeting GFAI stock for quick upside profits. However, the market segment earlier presented viability concerns.
One major factor that identifies a possible brewing short squeeze in GFAI stock centers on Fintel’s data for short shares availability. At a leading prime brokerage, the number of shares of GFAI available to short fell to zero at the end of last week.
To clarify, the data does not represent the total number of shares available to short. Also, this statistic does not include data from other brokers or dark pools, per Fintel. However, it provides a snapshot of the contrarian sentiment impacting GFAI stock.
Another factor to consider is the short borrow fee rate. At the end of the holiday-shortened week last week, the short borrow fee for GFAI stock reached 198.64%. From March 23 through April 3, this metric ranged between 80.24% and 83.73%.
Also on last Thursday, GFAI stock hit 89.8 out of 100 on Fintel’s Short Squeeze Score. Here, higher numbers equate to a higher risk of a short squeeze materializing. As well, GFAI reached 29 out of 250 on the list of most heavily shorted securities.
GFAI Stock Presents Risks for All Involved
While GFAI stock appears risky for bearish traders to target, it’s worth pointing out that some of the most recent indicators don’t point to remarkable enthusiasm for the contrarian position. For instance, GFAI’s short interest is only 4.74% of its float. Also, its short interest ratio sits at zero days to cover.
At time of writing, GFAI stock does not appear on Fintel’s Short Squeeze Leaderboard. In addition, on Benzinga’s list of most-shorted stocks, it likewise fails to make an entry. To be clear, anything can change as the latest data points come through. Nevertheless, prospective traders should be careful about overextending themselves regarding this setup.
Fundamentally, what should give pause for GFAI stock and the underlying sector is a recent short-seller report on C3.ai (NYSE:AI). According to Reuters, Kerrisdale Capital stated that C3.ai suffers from “serious accounting and disclosure issues” in a letter to its auditor Deloitte & Touche LLP.
Disclosing a short position in AI stock, Kerrisdale further accuses the underlying company of “poor customer traction, failing sales partnerships and financial pressures.” In the past five sessions, AI slipped nearly 32% while GFAI nearly doubled in market value.
Still, it’s worth pointing out that in the trailing one-year period, GFAI stock fell 69%. Therefore, it’s hardly appropriate for risk-averse investors.
Why It Matters
According to TipRanks, among all investors that the company surveyed, less than 0.1% of portfolios held GFAI stock. Within this small subset, however, sentiment ranks as very positive. Specifically, stakeholders on average are up 6.5% in the last seven days and up 7.5% in the last 30 days.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
