Wall Street’s love affair with software turned sour on Thursday as a brutal selloff swept through the sector. Quarterly results from ServiceNow and IBM rattled investors and reignited worries that generative AI could eat into the traditional SaaS playbook instead of supercharging it. ServiceNow sank about 17% and IBM slid roughly 9%, dragging big enterprise names lower and leaving software-heavy indexes sharply in the red.
ServiceNow led the damage while Salesforce dropped about 9%. Adobe and Intuit each lost roughly 7%, HubSpot fell about 9% and Oracle slipped close to 5%. Workday also declined around 10% on the day, after earlier weakness had already left it down more than 45% for the year to date. The iShares Expanded Tech-Software ETF (IGV) shed roughly 5% and has been one of the sector’s worst performers in 2026, according to CNBC.
AI Disruption Fears Send Investors Running
Traders said the latest earnings painted a clearer picture of a market still trying to price in what generative AI will do to software business models. The fear is straightforward: if low-cost AI agents can automate more workflows, a lot of the functionality that enterprise vendors charge for today could get squeezed.
Analysts told Reuters that “the challenge is shifting from simply having an AI story to proving that it can support products, workflows, and returns.” In other words, having a flashy AI demo is no longer enough. Investors want to see recurring revenue behind it.
ServiceNow Blames Middle East Deal Delays, Flags Margin Squeeze
ServiceNow told investors that first-quarter subscription revenue growth took about a 75 basis point hit from delayed closings on several large on-premise deals in the Middle East. The cautious wording spooked traders, even though the company beat on revenue and EPS and slightly raised its full-year subscription guidance.
The company also highlighted near-term margin pressure tied to the recent Armis acquisition while arguing that demand for its AI products is accelerating, as laid out in its update from ServiceNow. The message: trust the AI ramp, ignore the margin noise. The market, at least for now, was not buying it.
IBM’s Solid Print Does Not Soothe the Street
IBM reported that first-quarter revenue came in at roughly $15.9 billion, with software revenue up about 11%. The company reiterated its full-year growth targets in its earnings release. On paper, that should have been reassuring.
Instead, investors zeroed in on signs of slowing software momentum and sent the stock lower anyway, according to IBM. The takeaway on the floor: in this tape, anything that hints at deceleration is getting punished, AI narrative or not.
Sector-Wide Fallout And The Next Big Test
The broad selloff left many enterprise software names sitting on hefty year-to-date losses. Traders said the next key test is simple but brutal. Can these companies turn AI pilots and proof-of-concept projects into durable subscription products, or are they just racking up flashy one-off deals that do not repeat?
Investors are also closely watching ETF flows and customer-level signals on pricing power and usage growth, according to CNBC. Any sign that customers are pushing back on seats or shifting spend toward cheaper AI tools could keep pressure on the group.
Fund managers say the market is drawing a sharper line between AI infrastructure winners, where spending on chips and cloud capacity is boosting revenue, and more traditional SaaS vendors that now have to prove they can monetize AI without gutting the subscription economics that made them attractive in the first place. ServiceNow executives maintain that AI will expand demand for its platform and support new pricing models, a pitch investors will be dissecting in upcoming analyst calls and earnings cycles, per Fortune.
For now, traders are bracing for more turbulence as the next waves of cloud and enterprise reports hit the tape. Any fresh commentary on AI revenue contribution or potential “seat compression” could swing names sharply in either direction while the market figures out who AI helps and who it leaves behind.
