Oct 29 (Reuters) – Shares of software companies tumbled in premarket trading on Thursday following disappointing results from Fortinet and ServiceNow, deepening worries about AI disruption that has plagued the sector.
Software companies have been under intense scrutiny this year as investors weigh the likelihood of newer AI models disrupting traditional business models.
The S&P 500 Software & Services Index has managed a 6% year-to-date rise, just about half the gains recorded by the S&P 500.
Fortinet was down 25% and was the top decliner on Wall Street’s benchmark index.
The company outperformed during the third quarter and raised its earnings and revenue expectations. However, investors wanted more from the company, whose stock has rallied 119% this year.
At least five brokerages cut their price targets on the stock, including Piper Sandler, Jefferies and RBC.
“We remain on the sidelines as we await evidence that new areas such as protecting east-west traffic from agentic adoption, large firewall AI data center-related deals, and (operation technology), can truly continue firewall momentum,” said Scotiabank, which cut its price target on Fortinet to $140 from $163.
“Similarly, we would like to see Fortinet’s SASE and SecOps offerings demonstrate greater enterprise traction in upcoming results.”
ServiceNow slid 18.1% as a third-quarter profit miss overshadowed a raise to its full-year subscription revenue and cash flow margin outlook.
The companies’ results weighed on other software stocks. Salesforce fell 4.3%, Palo Alto Networks slid 6%, CrowdStrike dropped 5% and Zscaler shed 5.8%.
Alphabet’s Google on Wednesday unveiled Gemini 4 Carbon, its latest frontier AI model, stepping up competition with OpenAI and Anthropic as the race to build more capable coding and cybersecurity systems intensifies.
(Reporting by Johann M Cherian in Bengaluru; Editing by Shinjini Ganguli)
