Software stocks are the most hated trade on Wall Street — and that might make them the best buy
Felix Frren opens with a striking divergence: the NASDAQ 100 is up roughly 70% over two years, yet a broad software ETF (IGV, holding ~110 companies including Oracle, Microsoft, and Palantir) is down around 8% in the same window. He attributes this gap not to fundamentals but to institutional momentum — arguing Wall Street has effectively abandoned quality analysis in favour of chasing price movement, leaving software as the most consensus short trade in the market.
The bear case against software that hedge funds are playing is straightforward: AI can replicate what enterprise software does, faster and cheaper, threatening the revenue models of the entire sector. Frren acknowledges the logic but pushes back, arguing that distribution, enterprise sales cycles, and deep software integration make cancellation far harder than the thesis assumes. He cites the staying power of Microsoft Office despite free alternatives like Google Docs as evidence that enterprise stickiness is underappreciated.
The core framework Frren presents is a "rubber band" short-squeeze setup, executed in three steps: - Measure how crowded the short side has become (positioning data) - Watch for a technical crack — price breaking above a key resistance level - Anticipate "force buying" as shorts are squeezed out, amplifying upside
He claims hedge funds have collectively made $24 billion shorting software over two years, but argues that trade is now dangerously stretched. His three stock picks are: Commvault (CVLT), a cyber-resilience company doing over $1B in revenue growing 19% annually but down ~60%; Expensify (EXPE), a micro-cap down ~97% from its peak but cash-generative, buying back shares, and integrating with AI tools; and Mara Holdings (formerly Marathon Digital), with over 25% of its float sold short and a pivot into AI energy infrastructure underway.
The broader warning Frren delivers is that buy-and-hold is increasingly dangerous outside the S&P 500 index, because capital rotates faster than ever and technology disruption cycles have compressed dramatically — pointing to Nokia, BlackBerry, and Cisco as cautionary precedents. He stops short of dismissing passive investing entirely, conceding the S&P 500 still works for long-horizon investors, but insists that sector or thematic funds require active judgment about when to rotate.
Felix Frren argues that while the NASDAQ surged ~70% over two years, software stocks quietly fell ~8% as hedge funds shorted them on AI-disruption fears. He believes that extreme short positioning has created a 'rubber band' setup primed to snap back, and names three specific stocks — CVLT, Expensify, and Mara Holdings — as short-squeeze candidates.
in a que squeeze scenario, the smallest names with the highest short interest often move the fastest.
Investors who buy thematic or sector index funds (AI, space, quantum) are actively making selections and should not apply a passive buy-and-hold mindset.
AI is going to kill all software companies. Why? Because AI can do what their software companies can do, but better and faster and cheaper
those hedge funds so far have made $24 billion betting that software stocks would go down.
right now in software, particularly three stocks I'm going to give you, is this rubber band stretched out as far as I've seen it in years.
selling software, distributing software, getting companies with 100 thousand employees to buy 100,000 licenses from you, that is still really, really hard. And AI doesn't help you with that.
There is an ETF called IGV. It's a software ETF index fund
it's an ETF that basically holds 110 leading software companies. Everybody like you know, Oracle, Palo Alto, Microsoft, Palangja, Crowd Strike, all that stuff.
someone's made that already. It's called Google Docs. I've got one open here on the screen. It's brilliant. I use it all the time. Have I still got Microsoft Office? Yes, I do.
people especially enterprises don't cancel software subscriptions very lightly because their whole system is kind of interwoven with this.
stock number one is CVLT. It's called Kumalt Systems. The second stock is Mara Holdings.
Com is essentially a cyber resilience and data protection company. They did over a billion dollars in revenue, growing 19% a year.
cyber attacks are increasing because AI can do the cyber attacks.
this stock's been hammered pretty harshly. It's down about 60 odd percent and it's now in a recovery phase.
Expensify. And I know it's a teeny tiny company. It's trading at a dollar in a bit. And normally I'd be very cautious about something this small, especially something that um peaked at $50. So this thing is down about 97%.
they've got millions of users and absolutely hammered, but they're still generating cash. They just did a 25 million share buyback
they launched something that lets AI assistants like Chat GPT plug directly into the expense data.
Mara. This used to be Marathon Digital, by the way, and it's a real squeeze candidate because over a quarter of this company's tradable shares are being shorted right now.
they're pivoting into something bigger. They're acquiring energy infrastructure. They're buying a company called Longriidge Energy, and they're building out AI data center capacity.
You've got a quarter of the sales, you've got a quarter of the shares sold short and if Bitcoin rallies or if the AI infrastructure starts getting attention, you get exactly the kind of force buying we're talking about with Avis.
Comvold cyber security resilience is a non-negotiable spending a billion in revenue punished pretty harshly.
Expensify is teenytiny beaten down with management buying back shares and embracing AI.
Marat is the biggest short squeeze candidate pivoting into AI energy infrastructure.
the old playbook, this buy and hold playbook, it doesn't work anymore. not for stocks. It doesn't even work for sector index funds.
It probably works for the S&P 500.
buying the S&P 500 will give you average returns in the long run if you've got a long run.
buy and hold is very very dangerous because the speed at which money moves around is now greater than ever.
Technology disruptions are faster and faster and faster.
Cisco was the most exciting software company around.
Some of the biggest and most profitable tech stocks have barely moved in two years, while the NASDAQ has exploded up by 70% in the same period.
I'm the guy who bought oil stocks 6 months before the war broke out, not because I have a crystal ball, but because I could see the big money moving into oil stocks.
I'm up very nicely about 60% on this right now. while the S&P has moved just about 9%.
Wall Street no longer buy stocks for their quality. They don't care about profits. They don't care about management. All they care about now is mment.
The NASDAQ 100 tracked by QQQ, if you're an index fund investor, it's up about 70% in the last two years.
if you put $10,000 into the NASDAQ in 2024, you'd have about $17,000 right now
the software companies, they didn't just go up slower. So they actually went down in the same time period. We're talking about a decline of about 8%.
hedge funds, the smartest money in the world, are betting billions of dollars against it. And they've been doing it for two years.
a company that looks like a mighty oak today can be chopped down into chopsticks in just two years. So if you just buy and hold one company forever, you might end up holding it all the way down to zero.
if you don't understand this, I believe you're going to get left behind. You will hold tech stocks and you'll make like 0%. Or the NASDAQ does 70%.
The rubber band effect: When you stretch a rubber band really, really, really far in one direction, what happens? it gets really really tight, right? And the further you stretch it, the more pressure builds up and then eventually that pressure becomes too much and suddenly it snaps back in the other direction.
Three steps. The first step is figuring out exactly how crowded one side of the boat is. Professional investors track something called positioning. The second step is look for the crack. the first sign that the boat is about to tip over. And it's when the price of a stock breaks through a level where a lot of people thought it would stay below it. And then your third step is the force bind.
Nokia was the leading phone company in the world, then Blackberry dominated business, then both effectively died as products — illustrating how capital rotates out of disrupted leaders.
I'm going to hold a live workshop on Father's Day at 7 PM New York time. Live from New York, actually. And I call it how to turn the IPO summer into a fiveyear wealth machine.
I'm going to give you a full bonus free research report on everything I'm covering here, plus more we have time for in the short videos. You can download that for free at felixfrren.org/software.
Felix Frren is running a live workshop on Sunday, free, two hours, at wealthmachine.org.
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