Software stocks fell this week on troubling earnings reports

Salesforce shares fell nearly 20% on Thursday, their biggest decline since 2004, after the cloud software provider reported weaker-than-expected revenue and issued disappointing guidance. CEO Marc Benioff said Salesforce was growing rapidly in the Covid era as companies rushed to buy remote work products. Customers then had to integrate all the new technology and ultimately rationalize it.

“Every enterprise software company has sort of adjusted” since the pandemic, Benioff said during his company’s earnings call. Companies that have recently released reports “basically all say the same thing in different ways.”

Software makers MongoDB, SentinelOne, UiPath and Veeva lowered their full-year revenue forecasts this week.

The WisdomTree Cloud Computing Fund, an exchange-traded fund that tracks cloud stocks, fell 5% this week, its sharpest decline since January. Paycom, GitLab, Confluent, Snowflake, and ServiceNow all lost at least 10% of their value in the downdraft.

Dell, which sells desktop computers and data center equipment to companies, raised its full-year forecast on Thursday and said its AI server backlog rose to $3.8 billion from $2.9 billion three months ago. However, the increasing share of these servers in the product mix, combined with higher production costs, will squeeze the company’s gross margin by 150 basis points annually.

Dell shares fell 13% in the week after hitting new highs. The company is seen as a beneficiary of the generative AI wave as companies increase hardware purchases. Expectations were “elevated,” Barclays analysts wrote in a note on the results.

Okta’s stock price fell almost 9% in a week. Analysts reported weaker-than-expected subscription backlogs. The company said economic conditions are making it difficult for the identity software maker to attract new customers and persuade existing ones to increase purchases.

“Macroeconomic headwinds continue to loom,” Okta Chief Financial Officer Brett Tighe said during the company’s earnings conference call.

One of this week’s inflation readings was slightly higher than expected. American central bankers maintain their benchmark interest rate, which is the highest in 23 years.

At automation software developer UiPath, business momentum slowed in late March and April, partly due to the economic situation, co-founder Daniel Dines told analysts on Wednesday. Customers have also become increasingly hesitant to enter into multi-year contracts, said Dines, who succeeds former Google executive Rob Enslin as CEO on June 1, just months after stepping down as co-CEO.

Cybersecurity software provider SentinelOne is seeing a similar trend.

“There’s no question that purchasing habits are changing,” SentinelOne CEO Tomer Weingarten told CNBC on Friday, adding that “the way customers evaluate software” is also changing. His company’s stock price fell 22% in a week after guidance missed estimates.

Added to this is the impact of artificial intelligence, which is causing companies to change their priorities.

Veeva CEO Peter Gassner cited reports of “disruptions to large enterprises as they work on their artificial intelligence plans.” Veeva, which sells life sciences software, lost nearly 15% of its value this week on worries about spending in the second half of the year.

During the earnings call, Gassner said that generative AI is a “competitive priority” for Veeva customers.

The news overall wasn’t bad. Zscaler shares rose 8.5% on Friday after the security software provider beat expectations for the quarter and raised its full-year forecast.

“We expect demand to remain strong as more enterprises plan to adopt our platform to better protect their cyber and data,” CEO Jay Chaudhry said on the company’s earnings call.

— CNBC’s Ari Levy contributed to this report.

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