Software giants deploy cash, but shares keep falling
Buybacks and strong fundamentals struggle to counter uncertainty.
After the sharp sell-off of late 2025 and into 2026, the hope on Wall Street was that software stocks had been overly punished and that the narrative would shift during the first-quarter earnings season, which will go into high gear in the coming weeks. For a time, it seemed that declines were moderating, with even a few days of gains, despite the ongoing war with Iran.
In the meantime, however, it appears that what was expected to halt the downturn, aggressive share buybacks and strong first-quarter growth and profitability, has failed to deliver.
Software companies have gone to great lengths to convince investors that the sell-off was excessive. They are deploying the vast cash reserves accumulated over two decades, the industry’s golden age, to fund large-scale share buybacks, in some cases on an unprecedented scale. Wix, for example, launched a bold reverse auction, offering to repurchase up to $2 billion of its own shares to signal confidence in its future. Adobe and Salesforce have also announced unusually large buybacks of $25 billion and $50 billion, respectively, with Salesforce already repurchasing $25 billion worth of shares in roughly a month, one of the largest buybacks in the history of the software industry.
Yet the billions being deployed have so far failed to revive stock prices. Wix, for instance, has fallen another 12% to a three-year low, even after buying back nearly half of its float. In Adobe’s case, the announced buyback amounts to roughly a quarter of its current market value.
As companies recognized that buybacks alone would not reassure investors, attention shifted to financial results. But that expectation was shaken at the end of last week, when ServiceNow, one of the largest enterprise software companies, reported earnings and saw its stock plunge 18%, the sharpest drop in its history. The results became a defining moment for the sector, effectively putting on hold hopes of a near-term recovery.
Ironically, ServiceNow’s results were not weak. The company reported 22% growth in subscription revenue and a 25% increase in backlog, reaching $28 billion in future contracted orders. It also raised its forecast for AI-related revenue from $1 billion to $1.5 billion. Despite this, investor confidence faltered.
ServiceNow’s software functions as a core “system of record” for organizations, managing everything from IT infrastructure and customer service to human resources and recruitment. These systems hold sensitive, accumulated data, employee records, salaries, and customer histories, making them difficult to replace. While AI tools have lowered the cost of building software, the underlying data remains a critical competitive advantage that cannot easily be replicated.
The company also announced a significant, though not excessive, share buyback, while continuing to invest in acquisitions such as Armis, which it acquired for $7.75 billion to strengthen its AI capabilities. On paper, ServiceNow did many of the right things. It still was not enough.
This raises a broader question: was the recent optimism about a rebound in software stocks justified, or merely wishful thinking among investors holding losses?
A growing debate is emerging. One view, sometimes referred to as the “SaaS apocalypse,” argues that as AI tools become more capable, traditional software may become obsolete. In this scenario, organizations would rely on AI agents to perform tasks or build their own internal tools, reducing the need for expensive, standardized software platforms. By this logic, companies such as Salesforce, Adobe, and Israeli firms like Wix and monday.com risk becoming outdated.
The opposing view is more cautious. Organizations are not rushing to replace existing systems or build software from scratch. Even with AI, developing reliable, secure, and scalable internal tools remains complex. Security risks are also emerging, including cases where AI agents have caused significant disruptions, such as deleting critical databases.
As a result, many investors believe the sell-off in software stocks may have been excessive, and that current valuations could present opportunities.
For now, however, ServiceNow’s results have shaken confidence, and attention is shifting to upcoming earnings from other major software companies. A key concern is uncertainty around future business models. ServiceNow, for example, is already experimenting with consumption-based pricing instead of traditional per-user licensing, a shift that could fundamentally reshape revenue predictability.
Until these questions are resolved, volatility in software stocks is likely to persist, creating both risk and opportunity for investors.
