Nvidia's huge post-earnings stock rally cost short sellers $3 billion

• Short sellers lost $2.9 billion as Nvidia's stock spiked 16% on strong earnings.
• Data from S3 Partners shows $18.3 billion of short interest in Nvidia stock.

Nvidia shorts lost big this week.

According to data from S3 Partners, investors betting on a decline in Nvidia's share price suffered roughly $2.9 billion in paper losses on Thursday when the stock ended the day 16% higher following the chip-maker's huge earnings beat the evening before.

Shares were up again on Friday, rising as much as 4%, though that gain had been pared to less than 1% by mid-morning.

Nvidia remains the largest short in the semiconductor sector, S3 said, with $18.3 billion of short interest. It's the third-largest US short behind Microsoft and Apple, which have $20.17 billion and $18.72 billion in short interest, respectively.

Tesla is behind Nvidia with a $17.01 billion short interest.

Short sellers in semiconductors have fared the worst across any sector this year, S3 said, though short interest in the sector has increased by $1.9 billion to $59.5 billion total over the last 30 days.

"The possibility of a delay in Federal Reserve interest-rate easing coupled with the hope of a pullback of stock prices in an overheated sector powered by high AI expectations made shorting the semiconductor sector both a market hedge and an outright Alpha play," S3 analysts wrote in a note.

Nvidia has dominated the stock market over the last year, emerging as the leader of the Magnificent Seven and a darling of the artificial-intelligence hype.

Goldman Sachs this week called the company "the most important stock in the world," and Wedbush's Dan Ives has dubbed chief executive Jensen Huang as "the godfather of AI" and has described Nvidia as a company at the cusp of an economic boom.

"[T]his is a 1995 Moment as now the AI Revolution and $1 trillion of incremental spending over the next decade is hitting the software ecosystem and rest of tech sector," Ives wrote in a Friday note to clients. "Nvidia and the golden GPUs are the start of the spending wave."

On Friday, Nvidia's market capitalization breached $2 trillion for the first time ever, and its stock, up nearly 70% year-to-date, hovering at $809 a share before noon in New York.