Short sellers are easing off broad wagers against the software sector after a bruising winter slump, but positioning in several individual stocks suggests bearishness is still running rampant below the surface. Short interest as a percentage of float in the S & P 1500 Software Index has edged lower after peaking on Feb. 26, according to S3 Partners data. The moderation comes as the sector's slide cooled after declining 23% year to date. "The biggest thing for me is that the shorts still have conviction," said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. "They are not building as much now, but that's because you kind of run out of exposure sometimes. If the market keeps going down, then I think you might see some more shorting." Investors have been questioning whether artificial intelligence competitors and automation tools could erode demand for traditional software licenses and workflows. Valuations once justified by steady subscription growth are being reevaluated as investors weigh the possibility that AI could permanently shrink long-term revenue potential. As a result, short sellers' focus is shifting to a subset of companies where bearish bets are still climbing. UiPath saw the largest one-month increase in short interest, with bets rising by 4 percentage points to 26.2% of float. The latest uptick has pushed the stock into what S3 calls "battleground" territory, with active long interest narrowing to just 1.31 times shares sold short — 139 million shares held long versus 107 million shares short. Other names drawing increased attention from short sellers include Sprinklr , Dropbox and Workday , all of which saw notable gains in short interest over the past month. The buildup highlights a more selective approach by investors, who are targeting specific companies with perceived vulnerabilities — even as aggregate sector positioning stabilizes.
