Shares ServiceNow (NYSE: NOW) pulled back today after disappointing results. Pegasystems (NASDAQ: PEGA), a small-cap enterprise automation software company, appears to have confirmed a troubling trend for ServiceNow: customers are delaying software orders while spending money on AI.
As of 12:44 pm ET, ServiceNow shares were down 5.9%, while Pegasystems shares were down 16.2%. iShares Expanded-Tech Software ETFwhich tracks shares of leading software companies such as ServiceNow, fell 2.7%, showing software stocks as a whole fell even as major indexes were flat.
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Why the Pegasystems report is bad news for ServiceNow
Pegasystems missed revenue and profit estimates as management said: “Unprecedented changes in the artificial intelligence market have caused customers to delay purchasing decisions.”
This comment and the poor results reflect updated information from IBM The traditional tech giant fell last week after it warned that several major customer deals had been delayed as its clients redirected capital spending budgets to artificial intelligence hardware and prices for components such as memory rose rapidly.
Pega CEO Alan Trefler also said that uncertainty over the cost of generative AI programs is causing companies to be more hesitant, adding that decision cycles have lengthened.
The development has implications for ServiceNow, which relies on similar budget spending for its cloud software.
What’s next for ServiceNow
ServiceNow is scheduled to report second-quarter earnings after the bell, and investors may be expecting to hear similar comments from the enterprise software giant.
Analyst consensus calls for revenue to rise 22.2% to $3.93 billion and adjusted earnings per share to increase from $0.82 to $0.86.
ServiceNow was one of the biggest losers in the so-called SaaSpocalypse as software shares fell on concerns about the AI disruption. The stock is now down more than 50% from its late 2024 peak, although it continues to perform well.
Today’s report comes at a crucial time. Expect stocks to move sharply one way or the other tomorrow, depending on the results.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions and recommends International Business Machines and ServiceNow. The Motley Fool has disclosure policy.
“Why ServiceNow Stock Dropped Today” was originally published by The Motley Fool.