TLDR
- Goldman Sachs says the recent rebound in US software stocks is likely to continue
- Hedge funds are at record short positions in software and IT services, but are starting to buy
- The S&P 500 software and services index has lost over 18% this year, shedding $1.2 trillion in value
- Tech stocks have been hit hard by fears that AI tools will replace core software services
- IBM dropped 13% in a single day after Anthropic launched a coding tool targeting IBM systems
Goldman Sachs prime brokerage said in a note this week that the recent bounce in US software and IT services stocks is likely to continue.
The note, seen by Reuters on Thursday, comes even as hedge fund short positions in the sector hit their highest level since Goldman began tracking them in 2016.
The S&P 500 software and services index has fallen over 18% so far this year. That drop wiped out more than $1.2 trillion in market value, according to LSEG data.
Despite that, the index recovered more than 4% this week. Goldman believes that recovery has room to run.
Software and IT services were the two most shorted US industries on Goldman’s prime brokerage desk as of February 24. Long positions in the sector are at a record low.
A separate JPMorgan note also confirmed that hedge funds began buying big tech stocks last week, including names seen as vulnerable to AI disruption.
“While positioning remains very stretched between Semis and Software, the rotation seemed to slow or reverse a bit,” JPMorgan said in its note to clients.
Why Software Stocks Fell So Hard
Tech and software stocks have been under pressure since January. The main fear is that new AI tools will replace core software services in areas like legal research, coding, marketing, and data analysis.
Companies like Salesforce [CRM], Adobe [ADBE], RELX, and MSCI have all seen sharp declines this year.
IBM had its worst single day in 25 years on Monday, dropping 13% after Anthropic announced its Claude coding tool can modernize programming languages that run largely on IBM systems.
The iShares Expanded Tech-Software Sector ETF [IGV] is down 24% in 2026.
Goldman Sachs also reported that hedge fund net sales in global equities hit their highest level since President Trump announced import tariffs last April.
Financial stocks saw the highest net sales overall. Energy, healthcare, and staples saw the most net buying.
Analysts Still See Upside in Some Names
Not all analysts think AI will destroy software companies. Some argue these firms could acquire AI startups or build their own AI tools to stay competitive.
Hedge funds have already increased holdings in RELX by 249,900 shares last quarter and added 173,600 shares in Salesforce [CRM], according to TipRanks data.
Among the stocks covered, analysts give Adobe [ADBE] the most upside, with a price target of $421.52, implying nearly 71% upside.
MSCI has the lowest implied upside of the group, with a price target of $683, suggesting roughly 27% gains from current levels.
JPMorgan’s note did not specify which individual tech stocks hedge funds were buying into.
Goldman’s prime brokerage began tracking these short position levels in 2016, making the current data the most extreme on record.
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