Software giants Fortinet and ServiceNow saw their shares plunge after quarterly reports failed to meet investor growth targets. The market reacted to slowing revenue and concerns that expensive AI initiatives are not yet generating significant profits. This negative sentiment has spread across the technology sector, leading to price target cuts by several brokerages and raising questions about the high valuations of established software firms.
Investor confidence in the software sector took a hit on Thursday as two major technology companies, Fortinet and ServiceNow, released earnings that fell short of high market expectations. The sell-off highlights a shift in sentiment, where investors are becoming increasingly skeptical about the speed at which software companies can turn their artificial intelligence investments into actual profit.
Fortinet experienced significant selling pressure, with its shares falling 26% during premarket trading. While the company did raise its annual financial outlook, the market focus remained on the slowing revenue growth in its services division. The stock had enjoyed a strong run this year, rallying 119% year-to-date, which meant investors had priced in very high growth targets. Following the report, at least fourteen brokerages, including firms like Piper Sandler and Deutsche Bank, lowered their price targets for the company.
ServiceNow also saw its stock decline by 18.5%. Although the company reported improved subscription revenue expectations for the full year, it missed profit targets for the third quarter. Analysts at firms such as Raymond James pointed to issues with backlog and subscription growth. The main investor concern is that the company’s heavy spending on AI initiatives has yet to show up in the bottom line as meaningful financial gains. This has led to at least ten brokerages reducing their price targets, signaling that Wall Street is re-evaluating the valuation of mature software companies focused on AI.
The cautious mood has extended beyond these two companies, dragging down other major technology stocks. Salesforce dropped 5.4%, while Palo Alto Networks and Atlassian declined 6.5% and 7% respectively. Zscaler also fell 5.8%. This sector-wide movement suggests that investors are worried about the ability of older software giants to protect their business models against rapid changes in technology. Competitive pressure is mounting, with companies such as Google releasing advanced AI tools like Gemini 4 Carbon, which creates new challenges for established cybersecurity and coding platforms.
For investors, the key factor to monitor going forward is how quickly these software companies can prove that their AI investments are actually improving profitability and attracting new customers. The current market reaction reflects a demand for clear evidence of profit growth rather than just the promise of future AI-driven expansion. Investors may continue to track whether these companies can sustain revenue growth amidst the intense competition from newer, AI-first technologies.