NEW YORK: Short sellers piling into bets against CrowdStrike Holdings Inc have been rewarded after a botched software update from the firm sparked a global information technology outage and sent shares plunging to their worst two-day stretch on record.

The contrarian group reaped paper profits of US$978mil on the cybersecurity software company’s 23% two-day drop, according to data from S3 Partners LLC.

The sell-off was enough to swing CrowdStrike short sellers to gains year to date and pushed July paper profits to nearly US$1.5bil.

Shares of the company slumped 13% on Monday, adding to last Friday’s losses.

Total short interest in the systems software sector - or, the US dollar amount of bets that the stocks will decline - has increased by nearly US$12bil so far this year, according to S3 data.

More than US$7bil of that figure is made up of increased short selling, while the remainder is due to the mark-to-market increase in the value of shares shorted.

CrowdStrike has seen the second-largest uptick in short selling in the sector this year, trailing only giant Microsoft Corp.

“We should see continued short selling in this sector, but as we saw over the last 30 days, short selling and short covering will be name specific,” Ihor Dusaniwsky, managing director of predictive analytics at S3, said in a report last Friday.

Multiple analysts covering the company downgraded ratings and cut price targets over the weekend.

“We find it difficult to tell investors that they need to buy CrowdStrike right now,” Guggenheim analysts led by John DiFucci wrote in a note on Sunday.

He downgraded the shares to “neutral” from “buy” citing possible resistance to new deals in the near-term.

Analysts at Scotiabank cut shares to sector perform from outperform, calling the outage a “black mark on a previously unblemished record”.

 - Bloomberg