New York, Jan 29, 2026, 12:07 (EST)
- U.S. software stocks slid following SAP’s cloud forecast and a sell-off in ServiceNow shares after earnings.
- The S&P 500 Software and Services Index dropped 6.5%, marking a steep decline for the sector
- With spending climbing and competition heating up, investors are demanding companies prove their AI investments are paying off
U.S. software stocks tumbled Thursday following SAP’s cloud forecast and a sharp post-earnings drop in ServiceNow, sparking renewed concern that AI is transforming enterprise software faster than many companies can leverage for pricing power. The S&P 500 Software and Services Index dropped 6.5%. (Reuters)
Timing is crucial. Investors now want actual returns from the AI spending surge, not just promises of growth. “The market appears to be questioning whether these massive capital expenditure hikes will generate sufficient returns,” noted Jesse Cohen, senior analyst at Investing.com. (Reuters)
J.P. Morgan analysts issued a warning that “the malaise in software sentiment persists,” pointing to a vicious cycle of low valuations paired with lingering high expectations. Adam Turnquist, chief technical strategist at LPL Financial, remarked that the market seems to be “pricing a worst case scenario that software is dead” amid growing fears about AI disruption across the sector. (Investing)
The selloff hit a fragile market. By late morning, Wall Street’s main indexes had dropped to their lowest levels in more than a week. Max Wasserman of Miramar Capital said investors were “starting to look under the hood” following yet another wave of AI spending announcements. (Reuters)
ServiceNow, known for its software that automates IT and business workflows, projected fiscal 2026 subscription revenue between $15.53 billion and $15.57 billion—beating analysts’ $15.21 billion forecast, per LSEG data. The company also boosted its share repurchase authorization by $5 billion, including a $2 billion accelerated buyback plan, yet the stock still dropped. “ServiceNow is growing both organically and by acquisition,” said Rebecca Wettemann, CEO of analyst firm Valoir, highlighting moves in customer relationship management (CRM) and security. (Reuters)
SAP set the tone for Europe’s markets with a sharp 15% drop in shares, dragging them to their lowest since February 2024. The culprit: a cloud revenue forecast for 2026 that fell short of expectations, slashing more than 40 billion euros off SAP’s market value. The company also revealed a two-year buyback program worth up to 10 billion euros. SAP projects cloud revenue growth between 23% and 25% in 2026, but warned of slower growth in its current cloud backlog—the contracted sales expected to convert into revenue—after seeing 25% growth last year. For 2025, cloud revenue hit 21 billion euros, with a total cloud backlog of 77.3 billion euros. Citi analyst Balajee Tirupati commented that SAP needs “an all-round acceleration to fight the trough sector sentiment.” Oddo BHF’s Nicolas David added, “you can’t miss by even the slightest portion,” as investors pivot toward semiconductors and other AI infrastructure leaders. (Reuters)
In the U.S., major application software names took a hit fast. Traders acted as if the sector was a single crowded trade, showing little tolerance for forecasts suggesting slower conversions, extended deal cycles, or signs that AI “agents” might automate tasks previously handled by conventional software licenses.
Microsoft’s latest results added pressure on investors. Capital spending hit $37.5 billion in the most recent quarter, soaring nearly 66% year-over-year as the company expanded its AI infrastructure. Azure revenue climbed 39% during the same period. “Revenues are up 17% and the cost of revenues are up 19%,” noted Eric Clark, portfolio manager of the LOGO ETF, highlighting margin squeeze amid rising expenses. (Reuters)
The market’s wager runs both ways. If SAP and other U.S. firms prove AI actually boosts renewals, bookings, and pricing—not just demo appeal—the sector might steady quickly. On the flip side, slower backlog growth, extended cloud migrations, and customers diverting spend to chips and data centers could keep app-software valuations under strain.
