- The first-quarter results of International Business Machines Corporation (IBM:US) and ServiceNow (NOW:US) highlight the pressure on software business growth, with IBM's software division experiencing a slowdown of 11.3%, leading to a significant pre-market stock price drop of about 10.59%.
- The potential squeeze of generative AI tools on traditional software business models has triggered market revaluation, affecting stock prices of major SaaS companies like Microsoft (MSFT:US) and Adobe (ADBE:US), with valuation adjustments ranging from 2.6% to 8.55%.
- The capital market's preference for tech stocks has shown a significant divergence between software and hardware. In 2026, the iShares Expanded Tech-Software ETF (IGV:US) has cumulatively declined by about 16%, while the iShares Semiconductor ETF (SOXX:US), which tracks underlying computing power, has recorded a gain of over 43%.
AI Tools Evolution Triggers Software Industry Valuation Reassessment
Since the startup Anthropic launched a new generation of AI tools with advanced automation task processing capabilities in February this year, the capital market has become more stringent in reviewing the traditional Software as a Service (SaaS) business model. These tools, applied in areas such as marketing automation, code generation, and data analysis, have raised investor concerns that existing enterprise-level software subscription revenues could face the risk of substitution. While the quarterly reports of IBM and ServiceNow exceeded Wall Street analysts' expectations in terms of revenue and profit absolute values, their forward-looking indicators and the slowdown in specific business departments have become the catalysts for market anxiety. Analysts at JPMorgan (JPM:US) pointed out that although the market had priced in some of the slowdown expectations, the unpredictability of AI technological disruption still leads to cautious fund allocation.
The Marginal Impact of Middle Eastern Geopolitical Tensions on Corporate Capital Expenditure
Amid the overall pressure on the software industry, geopolitical tensions have become another negative variable in some corporate earnings reports. ServiceNow's management explicitly stated during their earnings call that conflicts in the Middle East led to delays in signing some large enterprise orders, directly dragging down first-quarter subscription revenue growth expectations. This IT spending deferral by enterprises, triggered by geopolitical uncertainty, reflects the elongation of procurement decision cycles for non-core software needs during periods of increased global macroeconomic volatility. If the tense situation in the Middle East spreads to a wider region, global multinationals' budgets for software upgrades and digital transformation may undergo stricter internal reviews, posing substantial pressure on the overall order volume in the software industry in the second half of the year.
Hardware Computing Power Shows Counter-Cyclical Resilience
In stark contrast to the valuation adjustment in the software sector, semiconductor and hardware manufacturers are benefiting from the certainty premium brought by AI infrastructure development. Analog chip giant Texas Instruments (TXN:US), capitalizing on strong demand for power management and signal chain chips from data center clients, issued a second-quarter financial guidance that exceeded expectations, with its share price surging by 10% in pre-market trading. This positive news not only confirms the prosperity of the underlying hardware cycle but also led to concurrent increases for peers like ON Semiconductor (ON:US) and NXP Semiconductors (NXPI:US). UBS Global Wealth Management's strategy team believes this AI-driven soft and hard divergence logic will dominate fund flows in the tech sector for the coming years. The beta return era of indiscriminately buying tech giants has ended, replaced by a stock selection differentiation period highly dependent on alpha discovery.
