US software stocks slide after SAP, ServiceNow results fuel AI disruption fears

Jan 29 (Reuters) - U.S. software stocks fell on Thursday after SAP's cautious cloud outlook and a post-earnings drop in ServiceNow shares reinforced investor concerns about mounting competition from artificial intelligence-related companies.

ServiceNow NOW.N dropped 9.6% despite forecasting annual subscription revenue above Wall Street estimates. Germany's SAP SAPG.DE plunged almost 15% as analysts flagged that its cloud backlog and 2026 revenue forecast fell short of projections.

"The malaise in software sentiment persists, coupled with a seemingly paradoxical and vicious cycle of depressed valuations, with maintained, if not rising, investor expectations," J.P.Morgan analysts said in a note.

The double-whammy dragged Salesforce CRM.N shares down 5.6%, while Photoshop maker Adobe ADBE.O and cloud security firm Datadog DDOG.O fell 3.1% each. The stocks were among the biggest decliners on the Nasdaq .IXIC.

"All these software names are performing terribly because the market's kind of in our view pricing a worst case scenario that software is dead because AI is disrupting the space," said Adam Turnquist, chief technical strategist for LPL Financial.

Software stocks have fallen in recent weeks as investors reassessed how much of the AI boom will translate into near-term revenue and pricing power for traditional enterprise software versus infrastructure players such as data centers and chip companies.

The S&P 500 Software and Services Index .SPLRCIS dropped 6.5%, and is headed for its third straight month of losses, underperforming the broader S&P 500 .SPX, which was up 0.1% on the day.

Investors also kept an eye on Microsoft MSFT.O, which said that it had spent a record amount on AI in the last quarter and posted slower cloud-computing growth. Shares of the tech giant slid 9.8%.