Nvidia Corp.’s stock surge resulted in short sellers facing approximately $3 billion in paper losses, marking a challenging situation for bearish traders, according to an analysis by S3 Partners LLC.

Nvidia is the third-largest short in the US, as reported by S3.

The significant mark-to-market losses are a setback for contrarians who had warned about Nvidia’s lofty valuations potentially leading to a market bubble burst. With $18.3 billion of borrowed and sold shares, the company is the third-largest short in the US, as reported by S3.

Ihor Dusaniwsky, managing director of predictive analytics at S3, highlighted the unavoidable early losses for many short sellers post-Nvidia’s earnings report. Short sellers are anticipated to wait for better exit points.

The positive momentum in the company shares also uplifted the broader US chip industry, resulting in a one-day paper loss of $4.3 billion for semiconductor stocks, as per S3 data. Semiconductors have been a challenging sector for short sellers this year, accumulating mark-to-market losses of $7.2 billion in February.

Following the rally, the company’s shares continued to climb on Friday, seeing an early trading rise of up to 4.9% in New York.

Some investors believe that Nvidia’s stellar earnings will solidify the optimism around robust AI spending, justifying the significant stock market gains.

Nvidia’s 16% surge on Thursday propelled it to the third-largest S&P 500 company and positioned it close to surpassing a $2 trillion market value. The Philadelphia Semiconductor Index has already surged nearly 65% in 2023 and recorded an additional 13% gain this year.