Monday.com drops 19% as AI disruption fears mount in software

Shares of Monday.com experienced a sharp decline of over 19% on Monday after the project management platform provided disappointing forecasts, raising alarms about the potential impact of artificial intelligence on the software industry. The Israel-based firm projected its revenue for the current quarter to be between $338 million and $340 million, falling short of analysts' expectations of $343 million as reported by FactSet. Looking ahead, Monday.com estimates its full-year revenue will range from $1.452 billion to $1.462 billion, again underperforming against a FactSet prediction of $1.48 billion. This downturn comes amid a broader sell-off in software stocks, spurred by fears surrounding AI's capability to disrupt traditional business models. The iShares Expanded Tech-Software Sector ETF (IGV) has dropped 22% year-to-date, while Monday.com's stock has halved in value. In a recent earnings call, co-CEO and co-founder Eran Zinman reassured analysts by emphasizing the company's strategic pivot towards AI-enhanced features, including new agents and a 'vibe' feature aimed at boosting user engagement. "We currently do not perceive any adverse effects from AI competitors, and we are proactively transforming our product to become more AI oriented," Zinman stated. Despite these reassurances, management cautioned about continued volatility in the market this year, largely due to short-term margin pressures linked to foreign exchange fluctuations. In its latest earnings report, Monday.com announced fourth-quarter earnings of $1.04 per share, surpassing the LSEG expectation of 92 cents. Revenue increased by 25% year-over-year, reaching $333.9 million, which also exceeded the anticipated $329.6 million. However, the company projected an operating income of between $165 million and $175 million for the year, significantly lower than the FactSet estimate of $220.2 million.