The pullback casts doubt on a rebound in software stocks in recent months.

  • Results from ServiceNow and Fortinet failed to meet investors’ lofty targets, with further pressure from Alphabet reporting weakness in its core businesses.
  • Palo Alto Networks fell more than 5% in overnight trading, while Salesforce fell 4.7%.
  • The iShares Expanded Tech-Software Sector ETF (IGV), a proxy for the software-as-a-service (SaaS) sector, fell 3%.

Shares of key enterprise software markers pulled back in overnight trading late Wednesday after quarterly results from ServiceNow (NOW) and Fortinet (FTNT) failed to meet investors’ lofty expectations, with further pressure from Alphabet (GOOGL) reporting weakness in its core Search and Advertising business.

Palo Alto Networks (PANW) networks declined 5.5% in sympathy selling after peer cybersecurity firm Fortinet’s stock dropped over 25%. 

Fortinet’s product revenue grew significantly slower in the latest quarter than in the previous one, while some analysts noted that its beat on billings and revenue was smaller than desired. Product revenue rose 37% in the third quarter, compared to 52% in Q2.

Salesforce (CRM) dropped 4.7%, while Intuit (INTU) and Adobe (ADBE) shed about 2% each, following ServiceNow’s report. The iShares Expanded Tech-Software Sector ETF (IGV), a proxy for the software-as-a-service (SaaS) sector, fell 3%.

ServiceNow, the flagbearer of Saas rebound in recent months, reported mixed Q3 results, with its pipeline of new AI deals overshadowed by an earnings miss and evidence of slowing contract growth ahead.

Adjusted earnings in the quarter were $1 per share, below the $1.17 analysts had expected. Revenue and remaining performance obligations each rose 20.5% to  $4.13 billion and  $13.65 billion, beating expectations. However, an 18.5% RPO growth forecast for Q4 came in below a Bloomberg estimate of 19%.

Alphabet’s Report Adds To Pressure 

Alphabet’s report added to the selling pressure. GOOGL stock dropped nearly 10% after Google Services revenue, largely driven by advertising, came in at $96.3 billion, below analysts’ expectations of $98.5 billion, The Wall Street Journal reported, overshadowing a doubling of sales in its cloud unit.

After plunging to multi-year lows earlier this year on fears that AI would reduce demand for niche enterprise software, SaaS stocks strengthened in recent months, partly due to strong Q2 earnings and investors rotating out of red-hot chip stocks.

The latest move suggests concerns about a slowdown have not entirely faded. Retail sentiment on the sector was mixed. 

Retail View On SaaS Stocks

On Stocktwits, retail sentiment was ‘bearish’ for CRM, ‘neutral’ for IGV, ‘extremely bearish’ for INTU, and ‘extremely bullish’ for FTNT.

The sentiment for NOW turned ‘extremely bullish’ from ‘neutral,’ while the sentiment for ADBE turned ‘bearish’ from ‘neutral.’

“$NOW $CRM $IGV haven’t touched software in months because the run just got too overstretched. They weren’t moving on fundamentals. It was simply an opposite to the chip trade. That officially ended tonight. Expect major downside the next few weeks,” said a trader.

For updates and corrections, email newsroom[at]stocktwits[dot]com.<