What’s Sparking a Massive Sell Off in “Superconductor” Stocks?

Chinese and Korea “Superconductor” Stocks Implode After Wild Gains 

The discovery of a superconductor that can allegedly transmit energy without any losses at room temperatures has turned sour. Following the discovery, a number of Korean and Chinese stocks linked to the conductor exploded, some rallying by up to 300%. The stocks remain under pressure to give back nearly half of the gains.

Superconductor Craze and Sell Off

The excitement around the superconductor has dried up fast as it came, eliciting a similar comparison to GameStop and  AMC Entertainment Holdings craze that fizzled afterward, leaving some investors with huge losses.

Sunam Co. and Duksung Co. are some of the stocks feeling the brunt of changing market sentiments after exploding by over 200%, following the discovery. The stocks have already given back more than half of the gains as investors come to terms with the warnings from market regulators and companies about the superconductor.

Reports that the LK 99 does not possess the alleged superconducting capabilities are the latest headwind that’s taken a toll on the stock’s sentiments in the market.  Short sellers have been ramping up bets on the stocks as they had risen to overbought territories, with valuation levels stretching significantly.

Likewise, the losses are also being experienced in North America, with the American Superconductor Corp one of the hardest hit as sentiments in the sector turn sour. Short positions in the stock have already surged to 10% of free-floating shares from zero as of last month.

China’s Jiangsu Fasten Co. and Jiangsu Etern Co. have also experienced wild swings in the market following the superconducting rumor. The stocks initially exploded in line with gains being experienced in South Korea. Still, they came under pressure after the companies confirmed they are not conducting any studies on a metal with such capabilities.

However, investors, willing and able to stomach the volatility, have made significant gains going by the 200% plus rally. Likewise, some shorts sellers continue to generate significant returns as the stocks drop or correct to reflect their actual value following the superconductor debacle

At the height of the US meme stock craze, some traders made a fortune on taking advantage of gains of up to 5,000% on GameStop stock. However, those who held buy positions longer ended up incurring significant losses as the stock corrected from the overbought conditions.

Artificial Intelligence Craze

The Superconductor craze shares some similarities to the artificial intelligence boom that has been on a roll for the past year. Increased focus on the technology has seen stocks with exposure to the technology explode, with valuations increasing significantly. Nvidia is one of the stocks that has benefited from the craze rallying by more than 200%, with its valuation soaring above the $1 trillion level.

Amid the AI boom, some economists and strategists have started raising questions as to whether the gains tied to the technology are overstretched. A point of concern is that some stocks have benefited from the AI craze despite the companies not having anything to report on in terms of innovation. Nvidia is one of the companies that have shown it is benefiting directly from the craze going by the strong demand for its chips to be used in powering the technology. The company delivered impressive second-quarter results backed by solid guidance.

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