Synopsis
US software stocks fell in premarket trading on Thursday, following quarterly results from IBM and ServiceNow that reignited fears about AI-driven disruption across the sector.Listen to this article in summarized format
International Business Machines said its revenue growth slowed in the first quarter, pressured by weakness in its software business, which includes its Red Hat cloud unit. Growth in the segment slowed 11.3%, sending the Big Blue's shares 7.5% lower.
ServiceNow also flagged a hit to its first-quarter subscription revenue growth, citing delays in Middle East deals due to the ongoing Iran conflict. Its shares tanked nearly 13%.
Although both companies reported first-quarter revenue and profit above analysts' expectations, the results failed to allay investor fears about the sector.
"While one might think that ServiceNow and other software stocks are already pricing in some deceleration amidst the severe selloff, investors are jittery due to AI disruption fears and volatility," said analysts at J.P.Morgan.
Investor concerns around AI disruption have been building since Anthropic launched new tools in February that automated tasks across domains, including marketing and data analytics, raising questions about the pressure such products could put on traditional software businesses.
On Thursday, Microsoft lost 2.6% before the bell, as worries reverberated across the sector. Adobe fell 3.4%, CrowdStrike was off 2.8%, Intuit was down 3.9% and Datadog shed 3.6%.
Investors have drawn a hard line across the technology sector this year, dumping software stocks on concerns that AI may disrupt incumbents, while backing chipmakers that stand to benefit directly from sustained demand for AI‑driven hardware.
The iShares Expanded Tech-Software ETF has shed about 16% in 2026, while the iShares Semiconductor ETF has jumped over 43%.
Underscoring this trend, analog chipmaker Texas Instruments surged 10% on Thursday after it forecast second-quarter revenue and profit above estimates, on robust demand for its chip used in data centers.
Other analog chip suppliers, including ON Semiconductor, Microchip Technology, NXP Semiconductors and Analog Devices, also climbed, between 3.5% and 4.5% after Texas Instruments' results.
"This general bifurcation within tech and within AI is going to be something which is a major driver for markets in the years ahead," said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.
"The last couple of years, you could have held any large stock exposed to tech or AI, and you would have done quite well. Going forward, there's going to be a lot bigger range of outcomes."
