Image Source: Unsplash

Hydrogen fuel cell and elctrolyser systems specialist Plug Power (PLUG) has finally seen the cord being removed — at least when it comes to the underlying security’s incredible rally. Early Tuesday afternoon, PLUG stock found itself down more than 8%, forcing speculators to readjust their prior assumptions. Still, the bears might not have the easiest opportunity here, even amid rising skepticism.

In the trailing month, PLUG stock has gained a ridiculous 163%. Even including today’s volatile session, the last five days has witnessed the equity jump over 56%. Much of the enthusiasm appears to be driven by AI-related speculation. Specifically, H.C. Wainwright analyst Amit Dayal has championed the concept of surging electricity demand from AI data centers and industrial electrification making green hydrogen a more competitive energy source.

Investors have already witnessed nuclear energy stocks skyrocket due to the broader AI energy infrastructure theme. With similar undertones seeping into Plug Power’s hydrogen industry, bullish investors decided to pile into PLUG stock.

However, given the parabolic climb, it appears that many of these early speculators are simply taking some profits off the table. Fundamentally, there’s nothing in the news cycle that suggests this AI/energy narrative has structurally shifted. Still, if the bears believe that this is an open invitation for downside wagers, PLUG stock represents a high-risk endeavor.

(Click on image to enlarge)

Right now, Fintel estimates that the security’s short interest of float stands at 32.05%. Typically, a threshold of 10% serves as a warning while 20% or greater represents an extreme reading. On paper, this metric implies severe bearish pressure. However, an unexpected swing higher in the target stock could spark what’s known as a short squeeze.

Essentially, all short transactions impose tail risk — the threat of an ever-rising obligatory payment as the underwritten event gets realized to the extreme ends of the distribution. Mechanically, those wishing to exit their short exposure must initiate buy-to-close transactions. Of course, this buying pressure creates an upward positive feedback loop.

That’s exactly what PLUG stock threatens to do. While short squeezes are notoriously difficult to predict, the current speculative winds still appear to favor the bulls.

More By This Author: