Shares of ServiceNow (NOW -6.39%) were pulling back today after disappointing results from Pegasystems (PEGA -16.00%), a small-cap enterprise automation software company, seemed to confirm a concerning trend for ServiceNow, that customers were delaying software orders as they spend on AI.
As of 12:44 p.m. ET, ServiceNow was down 5.9%, while Pegasystems had lost 16.2%, and the iShares Expanded-Tech Software ETF, which tracks top software stocks like ServiceNow, was down 2.7%, showing software stocks were down broadly even as the major indexes were flat.
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Why the Pegasystems report is bad news for ServiceNow
Pegasystems missed estimates on the top and bottom lines as management said, "Unprecedented changes in the AI market caused clients to delay their purchasing decisions."
That commentary and the poor results echo the update from IBM last week, as the legacy tech giant plunged after it warned that several large customer deals were delayed as its customers redirect capital expenditure budgets to AI hardware, with prices for components like memory rising rapidly.
Pega CEO Alan Trefler also said cost uncertainties around generative AI programs were causing companies to be more hesitant, adding that decision cycles have lengthened.
The development has implications for ServiceNow, which relies on similar budgetary spending on its cloud software.
NYSE: NOW
Key Data Points
What's next for ServiceNow
ServiceNow is due to report second-quarter earnings after the bell, and investors may be expecting to hear similar commentary from the enterprise software giant.
The analyst consensus calls for revenue to grow 22.2% to $3.93 billion, and for adjusted earnings per share to tick up from $0.82 to $0.86.
ServiceNow has been one of the biggest losers in the so-called SaaSpocalypse as software stocks have plunged on fears of AI disruption. The stock is now down more than 50% from its peak in late 2024, even as it's continued to deliver solid results.
Tonight's report comes at a pivotal moment. Expect the stock to swing big one way or the other tomorrow, depending on the results.
