Short Ideas: Which Stocks Could Disappoint Investors in 2025/2026?
Tech boom or not, not all stocks are good investments. The reasons I am holding short positions on Tesla, Palantir, C3.ai and SoundHound AI.
Three months have passed since my last article on shorting stocks. Time for a quick update and some current short ideas for stocks where I am betting on falling prices.
I have been managing a long/short portfolio* on the eToro platform since 2022, which is publicly available and can now be copied by other eToro users as part of the Popular Investors Program*. In this eToro portfolio, in addition to the long investment ideas known from this substack, I also invest in short positions in significantly overvalued stocks, depending on the market situation.
How I compare myself:
I compare my long/short portfolio on eToro not only to the Nasdaq 100 index, but also to my own High-Tech Stock Picking wikifolio. This sample portfolio contains the same high-conviction investment ideas that I regularly describe here in the blog. The five highest weighted stocks are currently Lyft LYFT 0.00%↑ , IAC IAC 0.00%↑ , Angi ANGI 0.00%↑ , Vimeo VMEO 0.00%↑ and PayPal PYPL 0.00%↑ with a total weighting of 51% (eToro) and 54% (wikifolio) respectively.
During the nine years since the wikifolio was launched, I have roughly tripled my capital and achieved an average performance of 13% per year. This figure corresponds to the return after all costs and fees for investors in the corresponding wikifolio certificate. I am very satisfied with this, especially since this performance was achieved primarily with tech small caps, which have not been as successful on the stock market overall in recent years - in comparison to big tech.
Why an additional eToro portfolio?
The wikifolio's double-digit returns have historically come at the cost of high volatility. This investable model portfolio suffered a drawdown of 55% in the tech crash of 2022 and also lost 30% of its value this year before the recent rally. This high volatility is inherent in the nature of the portfolio as it is managed using a long-only strategy, i.e. speculation on falling prices is not an option. Investors in the wikifolio will need to be able to withstand such volatility in the future.
This is where my new eToro portfolio comes in: The goal of my shorting activities is to profit from falling prices by short selling overvalued stocks in order to reduce overall volatility and ultimately achieve a better performance than the wikifolio. We will only know in a few years whether I succeed. This is a long-term experiment on my part, and I am excited to see how it develops and learn something new every day.
As of today (May 16th, 2025) the eToro portfolio is still slightly up since the beginning of the year. This is a nice performance, especially compared to the Nasdaq, as the leading technology index is still slightly down since the beginning of the year.
In contrast, even after the recent price recovery since the beginning of the year, the wikifolio is still down 8%. However, unlike the eToro portfolio, the wikifolio is denominated in euros, so currency movements must be taken into account when making comparisons. The dollar has lost 7% against the euro since the beginning of the year, which significantly relativizes the outperformance of the eToro portfolio and the underperformance of the wikifolio when adjusted for currency effects.
Nevertheless, since the beginning of the year, the eToro long/short portfolio has outperformed the wikifolio by around three percentage points, even after adjusting for currency effects, and thus slightly outperformed the Nasdaq. This is despite the fact that the short positions have lost some money in the rally of the last few weeks and have significantly slowed down the performance of the eToro portfolio. But that is simply part and parcel of such a long/short strategy.
For me, this development is a nice confirmation that I should continue to expand my long/short portfolio at eToro. Accordingly, I have increased the funds invested in it over the past few months.
Current Short Ideas
Regular readers of this blog are well aware of my critical view that many popular big tech stocks are overvalued. My largest short positions have been in Tesla and Palantir for months.
Palantir
After its recent run-up, Palantir PLTR 0.00%↑ is trading at $130, which is more than 90 times revenue, 200 times cash flow, and 500 times net income. This is far from the company's true value. Even though the company is currently riding a wave of success, benefiting from the Trump regime, posting record-breaking fundamentals, and enjoying a huge following among retail investors on social media, the crash of Palantir stock is likely only a matter of time. Valuation matters!
Tesla
I have already commented extensively on Tesla TSLA 0.00%↑ shares on this substack after the disastrous Q1 2025 results. The April delivery numbers do not inspire hope for an improvement in the second quarter. Nevertheless, Tesla shares have risen 50% in the past few weeks. Tesla bulls are now pinning their hopes on the announced production start of a cheaper model and the launch of the Tesla robot taxi in June. You can read my Tesla short case here.
Even more exciting than my big tech shorts are two other small cap shorts I hold. I consider these companies to be low quality. They got caught up in the AI hype and face major fundamental challenges.
C3 AI
Two years ago, I published a brief stock analysis of C3 AI (unfortunately only available in German) on my German blog. Since then, my fundamentally negative view of the company has not changed.
Although C3.ai's revenue growth has increased to 24% (TTM) over the past two years, cash flow is still negative. The Rule of 40 score of 14% indicates that the business model remains inefficient. The net loss is still close to 80% of revenues.
A critical factor is the dependence on a few large customers. C3.ai's largest customer is Baker Hughes, which accounts for about 20% of total revenue. This close relationship has been in place for several years and is very important to C3.ai. However, the contract with Baker Hughes is up for renewal and could potentially expire as early as June 2025. If this speculation is confirmed, the company's financials and share price are likely to come under further pressure.
The company is expected to report a loss of $300 million on sales of just under $400 million in fiscal year 2025 (ending April). A valuation of USD 2.5 billion simply does not fit. That is still far too much, even though the stock is down 30% since the beginning of the year.
The massive insider selling by CEO Tom Siebel and his management team also supports this view.
C3.ai has still not found a profitable, scalable business model 15 years after its founding. Even prestigious partnerships with Microsoft Azure and McKinsey cannot hide this fact.
Short sellers have been heavily speculating on falling prices for C3.ai stock for some time. This is shown by the so-called short interest, which is the amount of short sales of a stock expressed as a percentage of the outstanding shares. The development of short interest over time can be found for more than 5,000 stocks in stocks.guide - though somewhat hidden on the HGI analysis page for the respective stock.
What I find even more exciting is that you can also use short interest as a filter criterion in the stocks.guide screener. This allows you to find all stocks in an industry or index that are heavily shorted in a matter of seconds. For example, I searched for the most shorted stocks in the NASDAQ-100 index.
SoundHound AI
Another short candidate from the AI hype is SoundHound AI. The Silicon Valley-based company develops artificial intelligence technologies for speech, sound, and natural language.
The company was founded in 2005, so it has a 20-year history. In 2022, SoundHound went public through a SPAC merger. In 2023, the company had revenues of just $46 million with an operating loss of $64 million.
In 2024, SoundHound went on a major shopping spree amidst the AI hype, acquiring three more money-losing companies by the end of the year. For the first quarter of 2025, SoundHound reported revenue of $29.1 million after the acquisitions, a 151% increase over the previous year.
Unfortunately, it wasn't just revenue that exploded with the acquisitions, but losses as well. Over the last four quarters, the company posted a net loss of $188 million on revenue of $102 million. Cash burn was over $107 million, higher than revenue.
It is astonishing that this acquired company, with all its integration and cost structure challenges, is valued by investors at over $4 billion with a share price of $11. That is 25 times expected sales for the current fiscal year. This is a completely inflated valuation - I think the company is worth only a small fraction of that.
Conclusion
Even though the current rally is bringing profits to stock market investors worldwide, I expect challenging times ahead with continued high volatility, especially for tech stocks. For this reason, I have started a long-term experiment with a long/short portfolio on the eToro platform. Overall, I currently have about 15% of my eToro portfolio invested in short positions. The portfolio is 100% transparent and publicly available.
If you would like to follow my long/short portfolio, you can sign up for eToro - or just subscribe for my High-Growth-Investing Substack:
*Disclaimer: This article is an expression of opinion and does not constitute investment advice. The author and/or persons or companies associated with him hold short positions in Tesla, Palantir, SoundHound AI and C3.AI (as of May 16th, 2025). The author and/or persons or companies associated with him are affiliated with eToro through an affiliate partnership and the Popular Investors Program. Copy trading does not constitute investment advice. The value of these investments can go down as well as up. Your capital is at risk. Past performance is not a guide to future results.