What Happened?
A number of stocks fell in the afternoon session after quarterly results from two major companies raised fresh questions about AI's impact on the software sector.
IBM declined about 10% after reporting slower Q1 revenue growth, with weakness in its software business. ServiceNow also fell after noting that delayed deals in the Middle East, tied to the Iran conflict, would affect its subscription revenue growth. NOW also expects recent investments in AI to weigh on margins in the near term.
The sector-wide move reflected an ongoing debate. Some investors have questioned whether AI tools will reduce demand for traditional software or change existing license models. The results were likely read through that lens, which contributed to selling across software names beyond the two companies that reported. Though neither cause was strictly about AI suggesting the contagion was thematic not fundamental. Also, given ServiceNow was viewed as AI-resilient, its miss weakened the "safe SaaS" case, causing some analysts to lower their estimates.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Tax Software company Intuit (NASDAQ: INTU) fell 7.9%. Is now the time to buy Intuit? Access our full analysis report here, it’s free.
- Sales Software company Freshworks (NASDAQ: FRSH) fell 8%. Is now the time to buy Freshworks? Access our full analysis report here, it’s free.
- Banking Software company Q2 Holdings (NYSE: QTWO) fell 8.1%. Is now the time to buy Q2 Holdings? Access our full analysis report here, it’s free.
Zooming In On Q2 Holdings (QTWO)
Q2 Holdings’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock gained 13.9% on the news that the company reported third-quarter 2025 results that exceeded Wall Street's expectations for revenue and profit and provided upbeat guidance. For the quarter, revenue grew 15.2% year-over-year to $201.7 million, beating analyst estimates.
The company's profitability also saw a significant improvement, with GAAP earnings per share of $0.23 coming in 64.3% above consensus. Adding to the positive sentiment, Q2 Holdings guided for fourth-quarter revenue slightly ahead of expectations and raised its full-year EBITDA forecast above analyst projections. This performance was underpinned by expanding profitability, as the operating margin swung to a positive 5.5% from a negative 7.3% in the prior year's quarter.
Q2 Holdings is down 31.5% since the beginning of the year, and at $47.55 per share, it is trading 50.1% below its 52-week high of $95.27 from June 2025. Investors who bought $1,000 worth of Q2 Holdings’s shares 5 years ago would now be looking at only $457.96.
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