Market value evaporates trillions! Short sellers ravage the US software industry, hedge funds earn $24 billion this year

According to sources from two major Wall Street funds, hedge funds are increasing their short positions on software stocks, becoming one of the key drivers of the fierce sell-off in this sector this year.

Data from financial analytics firm S3 Partners shows that hedge funds have gained $24 billion from shorting software stocks since 2026. Meanwhile, the total market value of the U.S. software industry has evaporated by $1 trillion during the same period.

Hedge fund insiders are reluctant to specify which stocks are being heavily shorted, but they indicate that the targets seem to be companies providing basic automation services to clients—services that are highly susceptible to being replaced by new artificial intelligence tools.

Just as hedge funds tend to chase momentum trades during upward trends, these investors also like to look for so-called “falling knives” during downturns—stocks that are experiencing indiscriminate selling—in order to increase their short positions.

Currently, the software industry offers such opportunities. The iShares Expanded Tech Software ETF (IGV) fell 8% this week, extending its year-to-date decline to over 21%. Since reaching its all-time high in September last year, this ETF has declined by 30%.

Gil Luria, an analyst at DA Davidson, said, “Right now, hedge funds are all net short the software industry.”

Largest Short Bets

Short sellers seek profit by predicting stock declines. They borrow shares and sell them to buyers willing to pay the market price. When the stock price drops, they buy back the shares at a lower price, pocketing the difference.

According to S3 Partners, stocks like TeraWulf and Asana among the IGV components are currently facing the largest short bets. For TeraWulf, over 35% of its available tradable shares are shorted. Asana’s short interest stands at 25%. Additionally, Dropbox and Cipher Mining have 19% and 17% of their circulating shares shorted, respectively.

Among IGV’s stocks, the worst performers this year include tax software maker Intuit and document management company DocuSign, both down more than 30%.

Some of the ETF’s largest holdings have also suffered heavy losses this year, with Microsoft and Oracle falling 15% and 21%, respectively. Salesforce, Adobe, and ServiceNow have all declined over 20%.

In recent months, as artificial intelligence has shifted from being a positive factor for many companies to a potential disruptive threat, software stocks have come under pressure. On Tuesday, U.S. software stocks plunged sharply, with panic spreading globally. The recent sell-off was triggered by a new tool released by American AI startup Anthropic, which intensified investor fears that AI could disrupt the software industry.

However, some investment bankers point out that, from a credit perspective, there has not yet been a large-scale panic, and companies’ revolving credit lines have not been tapped.

Some analysts believe that as several software companies prepare to release their earnings reports, market sentiment could change rapidly.

(Source: Cailian Press)