Hedge funds made $24 billion shorting software stocks so far in 2026 — And they are increasing the bet

• The iShares Expanded Tech-Software Sector ETF (IGV) has fallen 30% from its all-time high in September 2025, with major holdings like Salesforce and ServiceNow down 15% and 21% respectively
• TeraWulf has over 35% of its float sold short, while Dropbox and MongoDB have 19% and 17% short interest respectively, indicating concentrated bearish bets
• Analysts believe the software sector may be undergoing a 'structural change' driven by AI disruption, with hedge funds targeting companies whose automation services can be replicated by AI tools

Summary: Hedge Funds Profit $24B Shorting Software Stocks in 2026

Key Developments

Hedge funds have intensified short positions against software stocks in 2026, generating $24 billion in profits as the sector's market value declined by $1 trillion, according to S3 Partners data. The iShares Expanded Tech-Software Sector ETF (IGV) has fallen 30% from its September 2025 all-time high.

Primary Targets

Short-sellers are focusing on companies providing basic automation services vulnerable to disruption from new AI tools. According to S3 Partners, stocks with the largest short positions include:

• TeraWulf: Over 35% of float sold short
• Dropbox (DBX): 19% short interest
• Adobe: 17% short interest

Worst Performers

Major software stocks have experienced significant declines year-to-date:

• Intuit and Adobe: Down over 30%
• Salesforce: Down 15%
• ServiceNow: Down 21%
• Oracle, SAP, and Workday: All down more than 20%

Market Implications

DA Davidson analyst Gil Luria notes that "hedge funds are all net short software right now," with investors crowding into 'falling knife' trades as indiscriminate selling continues. The sector faces potential "structural change" that could trigger increased M&A activity.

Despite the severe equity sell-off, credit markets remain relatively stable, with companies not yet drawing on revolving credit lines. Market sentiment could shift as several software companies report earnings in coming days, potentially providing clarity on AI's impact on traditional automation businesses.