April 23 - U.S. software equities slipped in premarket trading as quarterly reports from International Business Machines and ServiceNow fed renewed concerns about how artificial intelligence tools might reshape demand across the software sector.
IBM reported a deceleration in revenue growth during the first quarter, with softness concentrated in its software business, which is anchored by its Red Hat cloud unit. Growth in that segment slowed to 11.3%, a development that weighed on sentiment and sent IBM shares down 7.4%.
ServiceNow also warned of a drag to its first-quarter subscription revenue service, pointing specifically to delays in deals in the Middle East attributable to the ongoing Iran conflict. The company and IBM both delivered first-quarter revenue and profit above analysts' expectations, but investors appeared unmoved by those beats, focusing instead on signs of emerging vulnerability in recurring software revenue streams.
Market strategists at UBS Global Wealth Management framed the issue as a shift in investor expectations - the emphasis has moved from merely having an AI narrative to demonstrating that AI can underpin viable products, integrate into workflows, and generate returns. They noted that widespread disruption in software looks more like a long-tail risk rather than an immediate threat, particularly for enterprise-focused and mission-critical vendors that benefit from sticky customer relationships.
Investor apprehension about AI-fueled disruption has been building since Anthropic introduced new automation tools in February that perform tasks across areas such as marketing and data analytics. Those developments prompted questions about the pressure such automation could place on incumbent software businesses.
In premarket action, Microsoft fell 1.8%. Other major software and security names also retreated: Adobe dropped 2%, CrowdStrike declined 2.2%, Intuit slipped 3.2% and Datadog was down 2.4% before the opening bell.
By contrast, analog chipmaker Texas Instruments jumped 11.7% after it provided second-quarter revenue and profit guidance above analyst estimates. Other analog and chip suppliers also gained, with ON Semiconductor, Microchip Technology, NXP Semiconductors and Analog Devices rising between about 3.7% and 4.7%.
The diverging performance highlights how the AI wave has created differing fortunes across hardware and software. Year-to-date through the period referenced in the reports, the S&P 500 software and services index has fallen by more than 13%, while the Philadelphia SE Semiconductor index has advanced almost 40%. Over the same span, the broader S&P 500 benchmark has risen roughly 4%.
Separately, a market-focused product called ProPicks AI was referenced as evaluating Microsoft along with thousands of other companies using over 100 financial metrics. The description indicates the tool applies AI to identify stock ideas that balance fundamentals, momentum, and valuation, and cited past winners highlighted by the product. Additional promotional messaging noted a flash sale related to that offering.
Key takeaways and market reaction are summarized below.