Anticipating a Surge: The Appeal of Short Squeeze Stocks for 2025

As 2024 draws to a close, investors are evaluating their strategies for the coming year, especially the best stocks to buy for 2025.

The conversation is dominated by AI stocks that have notably driven this market rally. Energy stocks remain a favorite amid changes in government leadership, while many are optimistic about a recovery in consumer discretionary stocks. Cryptocurrency trends also continue to attract attention, with some agreeing that the momentum will likely persist.

However, one category worth considering for 2025 is short squeeze stocks.

These stocks are heavily shorted, meaning many investors are betting against them. When the stock prices rise sharply, short sellers must buy back their shares to cover their losses, resulting in further price spikes and compelling upward movement… often significantly.

The GameStop Phenomenon: A Stellar Example

Take the instance of GameStop (GME) back in 2021, a prominent short squeeze play.

Investors heavily shorted GME throughout 2019 and 2020, believing video game sales were transitioning online and expecting GameStop’s demise akin to Blockbuster’s. Consequently, short interest soared, surpassing 100% of GME’s float, indicating more shares sold short than available for trading.

Short sellers capitalized on this bet as GME stock plummeted from $10 in 2015 to below $1 by early 2020.

However, in late 2020, GME began to rise, reaching $5 by December, prompting many short sellers to cover their positions. This pushed the stock further, spiking to $20 by late January 2021. Soon after, short sellers rushed to cover, and GME shares skyrocketed to over $100 within days.

This was a definitive short squeeze scenario. We foresee similar opportunities in 2025.

The Case for Short Squeezes in 2025

The logic behind this viewpoint is straightforward: short squeezes often occur during periods of widespread enthusiasm in the market.

Reflecting on the GameStop incident in late 2020 and early 2021, stocks were experiencing significant gains as investors rallied, fueled by government stimulus checks. This upbeat sentiment led to various lucrative short squeezes, including with GME.

2025 may present a similar situation.

Currently, AI-driven enthusiasm is propelling stock prices upward, with gains surpassing 20% in 2023 and expected to do so again in 2024. This would mark consecutive years of 20%-plus growth, a streak not seen since the Dot Com Boom in the 1990s.

Additionally, bolstered by recent political shifts, businesses’ confidence appears to be increasing. The Republican Party’s recent governmental control suggests a potential surge of pro-growth policies. As a result, consumer optimism is rising, with significant increases in both consumer sentiment and small business confidence noted recently by the University of Michigan and the NFIB Small Business Optimism Index.

This certainly paints a picture suggestive of enthusiasm in financial markets.

Sustained Enthusiasm on Wall Street

Recently, many stocks and exchange-traded funds (ETFs) have seen notable rises. Particularly, short squeeze candidates stand out.

The UBS High Short Interest Index, which monitors the 100 stocks with the highest short interest and market caps exceeding $1 billion, has surged by approximately 50% in just three months. Such growth mirrors the index’s dramatic increase during the GameStop short squeeze saga when it shot up close to 350% from its lowest point to its peak.

Clearly, the indicators suggest we are in a phase of Wall Street enthusiasm.

And these periods often last for extended durations.

For instance, the post-COVID market enthusiasm persisted for two years. Similarly, the Dot Com Boom extended for about five years, while the Reaganomics era unfolded over eight years, and the post-World War II excitement continued for nearly a decade.

With this current market sentiment just starting, it’s reasonable to expect it to carry through 2025.

This sets the stage for short squeeze stocks to potentially soar next year.

Conclusion: Positioning for Opportunities

The proverbial “golden opportunity” of short squeezes emerges at a strategic time.

Recently, my team and I have been developing the ultimate stock-picking tool aimed at pinpointing ideal stocks to purchase at the right moments.

This tool focuses on stocks with strong fundamentals, technical patterns, and favorable investor sentiment; essentially, solid trades on all fronts.

We have utilized this screener to identify stocks primed for significant short squeezes in 2025, filtering for companies valued over $1 billion with at least 20% of their float sold short. For instance:

• Mobileye (MBLY), a player in the autonomous vehicle sensor market, has drawn heavy short interest. As high auto financing rates may decrease in 2025, a market rebound could trigger a short squeeze for MBLY.
• Symbotic (SYM), with over 30% of its float sold short, creates automation solutions for warehouses. If the incoming government pushes for reshoring manufacturing, SYM could also experience substantial growth and a potential short squeeze.
• Then there’s Marathon Holdings (MARA), a cryptocurrency stock with a short interest of 20%.
• C3.ai (AI), a promising AI software company, has around 22% of its float sold short, presenting another potential candidate. This also applies to trendy retailer Revolve (RVLV).

All these stocks show promise for significant short squeeze rallies in the coming year, revealed by our latest stock-picking tool.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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