Software Sector Slumps as AI Fears Overshadow Strong Earnings from IBM and ServiceNow

Shares of IBM and ServiceNow plummeted following their latest earnings reports, signaling a shift in investor sentiment toward the software sector. Despite reporting results that exceeded Wall Street expectations, both companies struggled to convince the market of their long-term growth trajectories in an AI-dominated landscape. The sell-off reflects a growing anxiety that generative AI could commoditize software services, potentially eroding pricing power and margins for established players. This sentiment sparked a wider contagion, with the iShares Expanded Tech-Software Sector ETF dropping more than 7%. IBM reported an adjusted earnings per share beat of $0.10 and revenue that exceeded estimates by $300 million. However, the stock fell nearly 9% after management opted to reiterate its 2026 full-year guidance rather than raise it, a move that disappointed investors expecting an upward revision. ServiceNow saw its shares crash nearly 18%, despite raising its 2026 subscription revenue guidance. The company cited deal delays in the Middle East, specifically referencing the conflict involving Iran, as a primary headwind. Despite this, the company noted that its AI offerings remain on pace to surpass its 2026 revenue target of $1 billion. Market analysts remain divided on the long-term impact. While the immediate reaction was bearish, some firms, including Barclays, maintain an overweight rating on ServiceNow with a price target of $132. These analysts argue that deep integration into customer IT landscapes makes these firms integral to the AI transition, viewing current volatility as a macro-driven event rather than a fundamental failure.