MSFT is down 15% YTD, over $500B in market-cap losses, while software and AI names sell off sharply even as QQQ and the Mag 7 remain flat.

Short sellers are selling on the way down in MSFT, ORCL, AVGO, & AMZN, in a momentum-driven, distressed trade rather than the usual reversal pattern.

Mag6: MSFT’s correlation to peers collapsing to near zero, with overall Mag7 correlations cut in half. S&P short interest rising in a reversal pattern.

U.S. Software stocks have generated $24B in MTM PNL for short sellers YTD, while the market capitalization of the sector has declined by $1T.

Microsoft’s 15% YTD decline represents the largest market-cap loss in history—more than half a trillion dollars.

ORCL, CRM, INTU, and TTWO have also sold off sharply, down 22% YTD and 15% over the past week.

Smaller pure-play AI stocks have seen similar declines of roughly 15%.

MSFT’s short interest is up 20%, ORCL up 10%, with smaller increases across other names.

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

Throughout the sell-off, QQQ’s price and short interest have remained stable. This is a software-specific phenomenon; the broader Mag 7 is essentially unchanged.

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

Mag 7 correlations have broken down: MSFT’s correlation to peers is near zero versus 0.54 last year, and internal correlations have fallen from 0.53 to 0.22.

The Mag 7 no longer trades as a unified block; even excluding MSFT, correlations remain significantly lower.

Meanwhile, S&P short interest is up 10%, reflecting a broader reversal pattern as traders short into strength.

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