Microsoft Short Interest Drops 34%

As of the January 15 short interest settlement date, nearly 42 million shares of Microsoft Corp. (NASDAQ: MSFT) were short. That was about 0.6% of the company’s total float and an increase of 7% from two weeks earlier. A year ago, more than 63 million shares of Microsoft were short.

A concerted attack on short sellers of certain stocks has roiled the equities markets over the past few weeks. Buyers of GameStop Corp. (NYSE: GME) stock, for instance, have pushed the stock to a gain of more than 1,700% since the beginning of the year.

Short sellers, especially big ones like hedge funds, have been seriously battered by the run-up in share prices in stocks like GameStop and movie theater operator AMC Entertainment Holdings Inc. (NYSE: AMC), which has seen its share price rise by more than 800% so far in 2021. These shorts are forced to cover their bets by buying the stock (known as a short squeeze), thereby driving the share price even higher. When the dust settles, someone will be a lot poorer than they were a month ago.

Stocks with relatively few shares floated and high short interest (like GameStop) are perfect targets for a short squeeze. Short sellers in stocks like Microsoft with more than 7.4 billion shares in its float (compared to fewer than 50 million floated GameStop shares) are insulated from the worst effects of a short squeeze.

The year-over-year decline in short interest in Microsoft is due largely to the stock’s 42.5% valuation increase last year. Unless a short seller times a short sale well, profits will be hard to produce when a stock is rising that much. The company’s fiscal second-quarter results added even more luster to its stock. Analysts have maintained their Buy ratings on the stock and raised their price targets to reflect their enthusiasm.

Microsoft’s shares added about 0.3% on Wednesday to close at $232.90 and traded up about 1.5% in Thursday’s premarket. The stock’s 52-week trading range is $132.52 to $240.44, and that high was posted Wednesday. The consensus price target on the stock $269.20, and the high target is $315. At Wednesday’s closing price, the potential upside to the consensus target is 15.6% and the potential gain at the high target is more than 35%. Not a particularly attractive play for short selling.