Short positioning in software stocks has climbed to levels not seen since the global financial crisis, according to a new note from Deutsche Bank, highlighting mounting bearish sentiment toward the sector.
Analyst Parag Thatte said the recent selloff has left software shares trading “25% below their 200-day moving average,” describing the decline as “worse than the selloffs during the 2022 unwind of Tech and the March 2020 lockdown panic.”
Thatte noted that median short interest across software companies has surged “to over 5%, the highest in 17 years,” placing it in the 93rd percentile relative to the past two decades. During the global financial crisis, short interest in the sector peaked at more than 9%.
Deutsche Bank observed that previous sharp downturns in software stocks were typically followed by earnings weakness within one to two quarters. In 2022, earnings growth in the sector slowed to zero, while during the 2008–09 and 2001–02 downturns, growth “turned outright negative.”
The bank also drew parallels with the energy sector’s 2014 slump, when shares fell roughly 25% and continued declining as profits deteriorated over the next 18 months. Short interest in energy names kept rising until early 2016.
For the current environment, Deutsche Bank suggested that a prolonged decline in software stocks would likely require clearer signs of earnings deterioration. While consensus forecasts call for growth to moderate from 26% in the fourth quarter of 2025 to 12% by late 2026, Thatte pointed out that 2026 earnings estimates have recently been trending higher.