Deutsche Bank: Short positions in software stocks reach the highest level since the global financial crisis

Investing.com - Deutsche Bank’s latest report shows that short bets on software stocks have risen to the highest level since the global financial crisis.

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Analyst Parag Thatte said that the sharp decline in the sector has caused software stocks to “drop 25% below the 200-day moving average,” noting that this decline is “more severe than the tech sell-off in 2022 and the panic during the March 2020 pandemic lockdown.”

Thatte wrote that the median short ratio for software companies has now surged “to over 5%, the highest in 17 years,” placing it in the 93rd percentile over the past 20 years. During the global financial crisis, the short ratio peaked at over 9%.

Deutsche Bank explains that major sell-offs in the past have typically been accompanied by earnings deterioration within one or two quarters.

In 2022, the software sector’s earnings growth fell to zero, and during 2008-09 and 2001-02, it “turned negative entirely.”

Thatte also pointed out that the decline in the energy sector in 2014 serves as a guiding example, when the sector fell 25% and continued to decline over the next 18 months as earnings collapsed, with the short ratio rising until early 2016.

For the current software sector, the bank states that further sustained declines may require evidence of weakening earnings. Although the market generally expects growth to slow from 26% in Q4 2025 to 12% by the end of 2026, Thatte noted that forecasts for 2026 have been consistently revised upward.

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