It seems like Artificial Intelligence (AI) is causing problems in the U.S. software market. Software stocks fell in premarket trading on Thursday, following quarterly results from IBM and ServiceNow that reignited fears about AI-driven disruption across the sector.
As per Reuters, International Business Machines (IBM) said its revenue growth slowed in the first quarter, pressured by weakness in its software business, anchored by its Red Hat cloud unit. Growth in the segment slowed to 11.3%, sending the Big Blue’s shares 7.4% lower.
“The challenge is shifting from simply having an AI story to proving that it can support products, workflows, and returns,” said analysts at UBS Global Wealth Management.
“Widespread disruption in software is more likely a long-tail scenario than an immediate one, especially for enterprise-facing and mission-critical providers with sticky customer relationships.”
As per Reuters, Microsoft (MSFT.O), Adobe (ADBE.O), CrowdStrike (CRWD.O), Intuit (INTU.O), and Datadog (DDOG.O) fell in premarket trading, dropping between 1.8% and 3.2%.
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In contrast, Texas Instruments (TXN.O) surged 11.7% after forecasting second-quarter revenue and profit above estimates, while other analog chipmakers including ON Semiconductor (ON.O), Microchip Technology (MCHP.O), NXP Semiconductors (NXPI.O), and Analog Devices (ADI.O) rose between 3.7% and 4.7%.
The highs and lows reflect a divide driven by the AI boom, which has weighed on software stocks while boosting chipmakers: the S&P 500 software and services index (.SPLRCIS) is down over 13% this year, while the Philadelphia SE Semiconductor index (.SOX) has jumped nearly 40%, and the broader S&P 500 (.SPX) is up about 4% so far this year.
The latest market reaction highlights how rapidly expectations around artificial intelligence are reshaping investor sentiment across the technology sector. While AI continues to be viewed as a long-term structural growth driver, its short-term impact appears uneven, creating clear winners and losers depending on how directly companies are positioned within the evolving ecosystem.
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Investors are increasingly differentiating between firms that are perceived as beneficiaries of AI infrastructure demand and those that may face pressure from shifting product cycles, changing enterprise spending priorities, or competitive disruption.
Market volatility in the sector underscores the uncertainty surrounding how quickly AI adoption will translate into consistent revenue streams across industries. While long-term optimism remains intact, near-term fluctuations suggest that investors are still working through valuation resets and adjusting expectations based on quarterly performance signals.
The current environment points to a period of rebalancing rather than a uniform downturn or rally. Capital is rotating within technology rather than exiting it entirely, with sentiment increasingly tied to execution, guidance, and tangible monetization of AI-related opportunities. As this transition continues, differentiation between business models is likely to remain a key driver of stock performance, reinforcing a more selective and fundamentals-driven approach to technology investing, rather than a single unified AI-driven market trend.