On Thursday, software stocks experienced a significant sell-off following disappointing quarterly results from ServiceNow and IBM, intensifying concerns that artificial intelligence tools and services could disrupt traditional software business models [1]. ServiceNow shares plunged 17%, marking their worst day ever, after the company narrowly beat Wall Street's estimates but cited conflict in the Middle East as a 'headwind' for quarterly subscription revenue [1]. IBM, despite beating on both earnings and revenue and maintaining its guidance, saw its stock drop 9% [1].
The negative sentiment spread across the sector, with Salesforce and Hubspot each falling about 9%, Adobe and Intuit declining roughly 7%, and Oracle down about 5% [1]. Workday slid 10% on Thursday and is now down over 45% for the year [1]. The iShares Expanded Tech-Software ETF (IGV), which tracks the sector, fell about 5% on Thursday and is down approximately 18% year-to-date [1].
The sell-off is attributed to mounting fears that AI tools from companies such as Anthropic and OpenAI could displace the longstanding cloud subscription model that many software vendors rely on [1]. In contrast, the largest tech companies—Alphabet, Amazon, Meta, Microsoft, and Apple—are set to report earnings next week and have generally held up better than pureplay software vendors, largely due to their central roles in the AI boom [1]. However, Microsoft, which has significant software exposure, is down 14% this year, making it the hardest hit among the tech giants [1].
CONCLUSION
The disappointing results from ServiceNow and IBM triggered a broad sell-off in software stocks, reflecting heightened investor anxiety over AI-driven disruption. While the largest tech companies have shown more resilience, the sector remains under pressure as the market awaits further earnings reports next week.