Software shorts at the highest since the GFC, Deutsche Bank says

Investing.com -- Short bets against software stocks have climbed to their highest level since the global financial crisis, according to a new report from Deutsche Bank.

Analyst Parag Thatte said the sector’s sharp drawdown has pushed software shares “25% below their 200-day moving average,” a drop he noted was “worse than the selloffs during the 2022 unwind of Tech and the March 2020 lockdown panic.”

Thatte wrote that the median short interest across software companies has now surged “to over 5%, the highest in 17 years,” placing it in the 93rd percentile over the past two decades. During the GFC, short interest peaked above 9%.

Deutsche Bank explained that past major selloffs were typically followed by earnings deterioration within one to two quarters.

In 2022, software earnings growth fell to zero, while in 2008–09 and 2001–02 it “turned outright negative.”

Thatte also pointed to the energy sector’s 2014 decline as an instructive comparison, noting that the sector sold off by 25% and continued falling as earnings collapsed over the next 18 months, with short interest rising until early 2016.

For software today, the bank said a further sustained decline would likely require evidence of weakening earnings. Even though consensus expects growth to slow from 26% in the fourth quarter of 2025 to 12% by late 2026, Thatte noted that forecasts for 2026 have been rising.

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