Software stocks plunge on ServiceNow, IBM results as AI fears escalate

On Thursday, shares in the software sector experienced a significant downturn, triggered by disappointing earnings reports from ServiceNow and IBM. The steep decline has amplified worries regarding the potential disruption of traditional business models by artificial intelligence tools and services. ServiceNow's stock plummeted by 17%, marking its most challenging day on record. Despite narrowly surpassing Wall Street’s expectations in its latest report, the company cited geopolitical tensions in the Middle East as a key factor impacting its quarterly subscription revenue. Meanwhile, IBM reported better-than-expected earnings and revenue figures but chose to maintain its financial outlook, leading to a 9% drop in its stock. Other notable declines included Salesforce and Hubspot, each falling approximately 9%, while Adobe and Intuit saw a decrease of around 7%. Oracle's stock fell by about 5%, and Workday faced a staggering 10% drop, with its value plummeting over 45% this year. The iShares Expanded Tech-Software ETF (IGV), a barometer for the software sector, also fell about 5% on Thursday, reflecting a broader decline of nearly 18% year-to-date. This downturn is largely attributed to fears that AI advancements from firms like Anthropic and OpenAI could undermine the established cloud subscription model. Looking ahead, major technology companies including Alphabet, Amazon, Meta, and Microsoft are set to report their earnings next week, with Apple following shortly after. These firms have generally weathered the storm better than pure-play software companies, primarily due to their strategic involvement in the AI landscape. Notably, Microsoft, which has significant software exposure, has been most adversely affected, with its stock down 14% this year.