What Happened?
A number of stocks fell in the afternoon session after quarterly results from two major companies raised fresh questions about AI's impact on the software sector.
IBM declined about 10% after reporting slower Q1 revenue growth, with weakness in its software business. ServiceNow also fell after noting that delayed deals in the Middle East, tied to the Iran conflict, would affect its subscription revenue growth. NOW also expects recent investments in AI to weigh on margins in the near term.
The sector-wide move reflected an ongoing debate. Some investors have questioned whether AI tools will reduce demand for traditional software or change existing license models. The results were likely read through that lens, which contributed to selling across software names beyond the two companies that reported. Though neither cause was strictly about AI suggesting the contagion was thematic not fundamental.
Also, given ServiceNow was viewed as AI-resilient, its miss weakened the "safe SaaS" case, causing some analysts to lower their estimates.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Advertising Software company PubMatic (NASDAQ: PUBM) fell 6.1%. Is now the time to buy PubMatic? Access our full analysis report here, it’s free.
- Cloud Monitoring company PagerDuty (NYSE: PD) fell 6.8%. Is now the time to buy PagerDuty? Access our full analysis report here, it’s free.
- Customer Experience Software company Sprinklr (NYSE: CXM) fell 6.4%. Is now the time to buy Sprinklr? Access our full analysis report here, it’s free.
Zooming In On PagerDuty (PD)
PagerDuty’s shares are very volatile and have had 21 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 8 days ago when the stock gained 5.3% on the news that software stocks benefited from a "risk-on" market sentiment fueled by potential peace negotiations between the U.S. and Iran.
As geopolitical tensions eased, investors returned to growth-heavy favorites like Microsoft and ServiceNow, which offer high-margin subscription revenue and clearer paths for integrating generative AI into enterprise workflows.
PagerDuty is down 49.9% since the beginning of the year, and at $6.21 per share, it is trading 63.9% below its 52-week high of $17.17 from September 2025. Investors who bought $1,000 worth of PagerDuty’s shares 5 years ago would now be looking at only $146.78.
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