Good results from software makers may not be enough amid growing AI fears

The Salesforce will likely report its fastest quarterly revenue growth in three years, but analysts say that may not be enough as fears that artificial intelligence would decimate software makers have undermined investor confidence in the sector.

CEOs of software companies like Salesforce’s Marc Benioff have tried to assure shareholders that proprietary data, decades of business experience, and in-house AI offerings will keep customers loyal, even as AI tools from companies like Anthropic invade legal, marketing, and customer service work.

But that hasn’t stopped a sell-off in shares of companies in the sector, with the index of US software and services companies falling around 16% since the start of the year, vastly underperforming the 3.2% rise in the broader S&P 500 benchmark index.

ServiceNow will kick off the earnings release season for major software-as-a-service companies this Wednesday, followed by Workday and Salesforce, likely in May.

Wall Street expects Salesforce’s first-quarter revenue to have risen 12.5% ​​to $9.83 billion, its fastest growth in 13 quarters, according to analysts surveyed by LSEG.

However, profit growth at the company, one of the most aggressive in adopting AI with its Agentforce autonomous agent platform, will likely slow to a near three-year low as costs rise.

Meanwhile, ServiceNow is expected to post slightly faster quarterly revenue growth at 21.1%, while Workday’s revenue will likely grow at a slightly slower pace at 12.4%.

“From a short-term stock market perspective, nothing the (software) companies report this quarter or next can really disprove this long-term bear case,” said Joe Maginot, portfolio manager at Madison Investments.

“It’s a more existential question about how things will evolve in the next three, four, five years and even longer.”

Experts expect software makers to use the profits to more aggressively showcase how AI is increasing revenue, the breadth of its adoption and whether it is helping retain customers.

“The opportunity exists for many established companies to succeed, especially since deploying AI in enterprises will take many years,” the Bernstein analysts said.