TLDR
- Goldman Sachs anticipates the US software sector rebound will persist
- Record-high short interest from hedge funds in software and IT services shows signs of reversing
- Software and services stocks in the S&P 500 have declined more than 18% year-to-date, erasing $1.2 trillion in market capitalization
- AI disruption concerns have hammered technology stocks across the board
- IBM (IBM) experienced a 13% single-day collapse following Anthropic’s release of a coding tool aimed at IBM platforms
According to a note from Goldman Sachs’ prime brokerage division released this week, the current rally in US software and IT services equities appears positioned to extend further.
Reuters obtained the note on Thursday, which arrives despite hedge fund short interest in these sectors reaching unprecedented levels since Goldman started monitoring this data in 2016.
The S&P 500 software and services benchmark has tumbled more than 18% since the beginning of the year. This decline has eliminated over $1.2 trillion in total market capitalization, based on LSEG calculations.
Yet the index has bounced back more than 4% over the current week. Goldman’s analysis suggests this upward movement has additional momentum.
As of February 24, software and IT services represented the most heavily shorted US sectors on Goldman’s prime brokerage platform. Simultaneously, long exposure to these industries has dropped to all-time lows.
A separate analysis from JPMorgan corroborated that hedge funds initiated purchases of major technology stocks during the previous week, including companies considered susceptible to AI-related disruption.
“While positioning remains very stretched between Semis and Software, the rotation seemed to slow or reverse a bit,” JPMorgan stated in its client communication.
Why Software Stocks Fell So Hard
Technology and software equities have faced intense selling pressure throughout January and beyond. The primary concern centers on emerging AI capabilities potentially displacing traditional software offerings across legal research, software development, marketing operations, and analytical functions.
Major players including Salesforce [CRM], Adobe [ADBE], RELX, and MSCI have all experienced significant year-to-date losses.
IBM suffered its most severe single-session decline in a quarter century on Monday, plummeting 13% after Anthropic unveiled its Claude coding assistant capable of modernizing legacy programming languages predominantly utilized within IBM ecosystems.
The iShares Expanded Tech-Software Sector ETF [IGV] has declined 24% during 2026.
Goldman Sachs additionally noted that hedge fund net equity sales globally reached their peak level since President Trump’s tariff announcements last April.
Financial sector stocks experienced the largest net outflows overall. Conversely, energy, healthcare, and consumer staples attracted the most net inflows.
Analysts Still See Upside in Some Names
Not every analyst believes AI represents an existential threat to software companies. Several maintain these enterprises could acquire emerging AI ventures or develop proprietary AI capabilities to maintain their competitive position.
Hedge funds have already expanded RELX positions by 249,900 shares during the most recent quarter and increased Salesforce [CRM] holdings by 173,600 shares, per TipRanks information.
Among tracked securities, analysts project the greatest upside potential for Adobe [ADBE], assigning a price objective of $421.52, representing approximately 71% appreciation.
MSCI carries the most conservative upside projection within the group, with analysts targeting $683, indicating roughly 27% potential gains from present levels.
JPMorgan’s analysis did not identify specific technology stocks being accumulated by hedge funds.
Goldman’s prime brokerage initiated tracking of these short position metrics in 2016, establishing the current readings as historically unprecedented.
