Software stocks got whacked by two earnings reports

The market heard “beat” and still ran for the exits

Thursday’s premarket was a messy little reminder that in this market, good earnings don’t always mean good vibes. ServiceNow and IBM both topped analyst expectations, but their guidance was cautious enough to make traders hit the sell button on enterprise software like it had just been caught saying the quiet part out loud.

ServiceNow: nice quarter, spooky outlook

ServiceNow posted first-quarter revenue of $3.77 billion, edging past the $3.74 billion Wall Street was looking for. And yet the stock fell about 12% in early trading. Why? CFO Gina Mastantuono pointed to a “prudent view of the geopolitical environment,” including delays in Middle East deals tied to the ongoing conflict.

That’s corporate-speak for: the road ahead may be bumpier than the revenue beat suggests. Investors don’t just want the scoreboard. They want the movie trailer too.

IBM: growth still happening, just not as fast

IBM didn’t escape the punishment either, with shares down more than 7% premarket after revenue growth slowed to 9%, from 12.2% in the prior quarter. The software segment — the part investors watch like hawks because it’s supposed to be the engine — also cooled, rising 11.3% versus 14% before.

And that’s where the AI anxiety kicks in. The fear isn’t just “can these companies grow?” It’s “can AI let customers build their own tools and skip the subscription bill?” That’s the kind of question that makes SaaS investors suddenly clutch their pearls.

The bigger ripple effect

The pain didn’t stay in one corner. Traders dumped other software names and ETFs too, including Salesforce, Adobe, Oracle, Microsoft, IGV, WCLD, and even VGT to a lesser degree. At the same time, broader market pressure didn’t help, with futures lower and Middle East tensions still hanging over the tape.

Big picture: this was less about one bad quarter and more about a market mood swing. The software trade is fine until investors start wondering whether AI is turning premium subscriptions into optional extras. That’s when the whole sector gets a hard reality check.