Summary: Short sellers have accumulated about $24 billion in paper profits as software names fall amid investor concern that AI developments may displace established software business models. The losses have been concentrated in the software cohort rather than the wider group of the largest mega-cap stocks.
The movement in recent days has been punctuated by commentary from S3 Partners LLC and by a market response to a product release. S3's figures indicate that this episode has produced significant gains for those betting against software equities, while Leon Gross, director of research at S3, characterized the pattern as a software-specific phenomenon, noting that the broader Mag 7 grouping has been essentially unchanged.
Market participants point to mounting unease about AI's potential to erode core software revenue streams. That unease intensified following the introduction of a new productivity tool by Anthropic PBC on Monday, an event that corresponded with renewed selling pressure across software and AI-related stocks. According to the figures cited, the software and AI-related segment has declined by roughly 20% since the beginning of the year.
As prices have dropped, short sellers have been expanding positions in several high-profile companies. S3's data identify Microsoft Corp., Oracle Corp., Broadcom Inc., and Amazon.com Inc. as among those seeing increased short interest. Specifically, Microsoft has experienced a 20% rise in short interest year to date, while Oracle's short interest has climbed by 10% over the same period. Broadcom and Amazon have also registered higher levels of short interest, though exact percentage changes for those two were not provided in the data cited.
Gross offered an observation on trading behavior for Microsoft: historically it tends to act like a reversal stock, where short sellers cover as the price falls. In the present case, he said, Microsoft is behaving differently - trading like a momentum-driven, distressed name with short positions being increased as the share price weakens.
The developments underline a concentrated re-pricing within software and AI-linked equities, producing sizable unrealized gains for short sellers while leaving the broader large-cap landscape relatively stable. The situation remains fluid, driven by market reaction to AI developments and specific product introductions.
Key data points included in this report:
- $24 billion in paper gains for short sellers, per S3 Partners LLC.
- Software and AI-related stocks down roughly 20% year to date.
- Short interest increases: Microsoft +20% YTD, Oracle +10% YTD; Broadcom and Amazon also higher.