Why the Silver Trade Shouldn’t Be Lumped In With GameStop Stock and AMC

Silver soared, then dropped. Whatever happens now, the metal’s price movements will look nothing like what happened with the stocks that faced a spectacular short squeeze and are now falling.

Monday, the price of actual silver rose as much as 9% to $29.52 per ounce. “Retail traders who drove the short squeezes in stocks like GME last week were banding together to try and trigger a squeeze in silver,” wrote Tom Essaye, founder of Seven’s Report Research, in a note.

It all revolves around the practice of short selling, where people borrow a stock and sell it, hoping the price will fall, making it possible to buy shares at a lower price and return them. A short squeeze happens when the price of the stock rises, rather than falls, forcing short sellers to buy. If a lot of the stock available for trading has been sold short, there can be a scramble to buy that triggers spectacular price gains.

That is what happened with GameStop (ticker: GME) last month. Other stocks that had been aggressively sold short surged as well.

But the iShares Silver Trust (SLV), after rising 11% to $27.76 a share Monday, is now down 11% from that level. There are key differences between companies like GameStop and AMC Entertainment (AMC) and silver.

First off, GameStop rose as much as 1,800% in a few weeks in January. AMC rose as much as 890% in roughly the same period. The iShares Silver exchange-traded fund, which buys futures contracts linked to the direction of the metal’s price, rose to roughly its all-time high of $27, set in August, and failed to break past it.

With the price down Tuesday, fundamentals, rather than the possibility of a short squeeze, are returning to the fore. While silver is an asset that can take part in a “reflation rally,” or one that occurs when economic stimulus jolts an economy out of recession and spurs inflation, that possibility doesn’t seem to have been enough to send the silver ETF to a new high.

Importantly, options trading was an important factor in the gains for GameStop and AMC. Retail traders were buying calls, or the right to buy shares at a specified strike price on a later date. The hope is that an option’s strike price will be lower than the stock’s price when that day comes, making it possible to buy at the strike price and make a profit by immediately selling on the open market.

That possibility forces the brokers who wrote the options contracts to hedge by buying the shares. It adds to demand for a stock and can contribute to a short squeeze, as appears to have happened with GameStop and AMC. Retail traders posting on Reddit were able to move the stock without much capital because they could buy call options at a far lower price per underlying share than the cost of the actual stock.

For silver, the overarching theme is that retail traders can’t summon up the large pool of capital needed to create huge demand for silver.

Traders aren’t buying calls on silver right now, Andrew Smith, chief investment strategist at Delos Capital Advisors, told Barron’s, citing the activity he saw Tuesday. That’s partly because buying calls on commodity ETFs, which reflect a blended forward expected price—based on the prices forecast for several different dates—is a complex process.

Buying silver outright, which is what retail traders did, requires much more money. There are no call options and no need for brokers to hedge against them.

“Squeezing the market isn’t likely” from here, wrote Jeff Currie, global head of commodities research at Goldman Sachs, in a note. In order for the WallStreetBets crowd to send silver prices up the 700% they rose in 1980, when the wealthy Hunt brothers gobbled up almost one-third of the global supply, they would have to own 4,600 tons of silver each.

Silver could certainly charge ahead, just not so fast so soon.

Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.

When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.

The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.

But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.

Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.

After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.

“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”

The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.

Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.

In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.

Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.

“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”

Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.

“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.

The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.

The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.

In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.

Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.

Why the Silver Trade Shouldn’t Be Lumped In With GameStop Stock and AMC

Nvidia’s earnings will test Wall Street’s confidence in the AI boom.