Netlist (NLST): A Short Squeeze or a New Tech Powerhouse?

Shares of Netlist Inc. (Nasdaq: NLST) have been on fire recently on both the hopes of a new technology and possibly a massive short squeeze.

After trading below $1 on Nov 10th shares are now at $7.87. Today's move alone is 39%. Volume has been exploding to the upside with volume at 25 million shares today versus a 3-month average of just 1.3 million shares.

What's all the hype about? Well this company has a new high performance memory product named HyperCloud that can be used in servers, storage and other high performance computer equipment. The company said the HyperCload increases computational power by 50%, increases memory capacity by 100%, reduces server cluster power consumption by 36% and lowers data-center hardware/software costs by 20%. Below you will find material from the company's recent presentation.

The company will be targeting Teir-1 OEMs with the product. Current clients of other products include Dell (Nasdaq: DELL) and H-P (NYSE: HPQ).

Recently, the company hosted a demonstration of HyperCloud and hopes to start taking orders and manufacturing the product soon.

One thing that always comes up with money-losing tech companies is the cash burn. Netlist started the year with $21.4 million in cash and now has $16.4 million as of the latest quarter. The company also has a line of credit. So while there is no immediate cash need, investors should be fearful of an equity raise although the company has no current plans.

The action in the stock suggests a classic short squeeze, which is a situation created when those that are short the stock, or betting against it, are forced to buy back the shares.

If most of the action in NLST is based on the short squeeze then it is vulnerable for a harsh move down when it is over. When the shorts finish covering there will be no bid-support for the stock.

If the move is more fundamental, with smart tech speculators betting on the promise of the technology, then the NLST story is not over.

Either way, it will be fun to watch and trade over the next few weeks.

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Hyper Cloud Press Presentation 11-24-09New

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