The software crash has generated $24 billion for short-sellers so far this year

• Short-sellers have seen monster gains on paper in 2026 as tech stocks have tumbled.
• Microsoft, Oracle, and Amazon stocks have faced increased short interest amid the sell-off.
• S3 Partners data shows investors betting against tech stocks have gained $24 billion year to date.

Tech has been clobbered by a broad rotation taking place in 2026, and the latest sell-off in software stocks has only added to the pain. Yet, on the other end of that pain has been a $24 billion gain for short-sellers.

The software rout took off this week, but some of the biggest names in tech have been struggling all year, battling both micro and macro forces that have hurt demand for high-flying AI plays.

For short-sellers betting against these stocks, the last six weeks have been a windfall. A report from data analytics firm S3 Partners reveals that short-sellers have netted billions in paper profits as they bet tech would drop from nosebleed levels.

The firm noted that while short sellers have been betting against some of the biggest names in software all year, they have been increasing their bearish positions recently as conditions shifted and volatility surged.

"U.S. Software stocks have generated $24 billion in MTM PNL for short sellers YTD, while the market capitalization of the sector has declined by $1 trillion," the firm's report reads.

S3 highlighted several software stocks that short sellers have been increasingly betting against

• Microsoft: - 17% year-to-date.
• Oracle: -30% year-to-date.
• Broadcom: - 10% year-to-date.
• Amazon: -3% year-to-date.

Of the software stocks on the list, Microsoft stands out, the firm said, because of the way short-seller behavior around it has changed amid its sharp decline this year.

"Historically, MSFT behaves like a reversal stock, with shorts covering on the way down," S3 noted. "Now it is trading like a momentum-driven, distressed name, with shorts increasing into weakness."

While the AI trade has faced intensifying scrutiny lately, the firm sees the widespread bearish trade as specific to software stocks, as short interest in the overall Magnificent 7 and the Invesco QQQ ETF, which tracks the Nasdaq 100, has been flat.

S3 maintains, though, that hedge funds are focused on increasing their short positions in large-cap tech, even as many sector leaders have already logged big declines.

"Contagion is visible across short books, with AVGO and AMZN seeing short-interest increases of 15% and 10%, and AVGO down 10% YTD," he stated.