Shares of Affirm (AFRM) rose as much as 13% on Tuesday morning after news that the company would be adding buy now, pay later functionality to self-checkout lines at Walmart (WMT).
Shoppers can already use Affirm to allocate payments for goods purchased on walmart.com, at the company's auto centers, its vision centers and at regular checkout lanes at one point of sale.
In other words, it's an incremental product update of a solution already offered to the vast majority of Walmart shoppers. If Affirm's partnership with the retailer results in business results – more sales, more customers, etc. – those results are already being driven.
However, the fact that this update is driving the stock higher shows how challenging this market has become for many investors who are still holding on to 2022-era positions. Data from FinViz shows that about 21% of Affirm's stock is shorted, meaning short sellers have bet that the stock will fall. For comparison, most companies have shorted 1% or less of their free float.
When short sellers are caught flat-footed because the market moves against them, they can often be forced out of these positions even if their fundamental views have not changed significantly.
Affirm shares fell more than 90% from their highs at the end of 2021 to their lows at the beginning of the year. Traders expected the name would likely be hit hardest by higher interest rates and fears of a consumer price downturn. And the stock fell accordingly.
But times have changed both in the markets and in the economy.
There are signs that conditions for BNPL games like Affirm have improved. According to Adobe Analytics, usage of these offers increased by 40% on Cyber Monday compared to last year.
And the stock's performance in recent months — Affirm shares have gained 180% since Nov. 1 and are up nearly 500% this year — show clear signs that traders are being pushed out of bearish positions.
When product updates push a company's stock up by double-digit percentage points and shares are heavily shorted, these moves are likely less about materially improving the market's assessment of the ultimate value of the company's discounted future cash flows and more about positioning in a market that is changing rapidly.
Because although Affirm is not a member of the Magnificent Seven or the remaining 493 stocks in the S&P 500, these shifts have knock-on effects across all sectors, styles and sizes.