What happened: The broader software sector declined Thursday, led by ServiceNow (NOW) stock, which fell nearly 27% in its worst day ever after the company’s fourth-quarter outlook fell just short of estimates, reigniting fears that competition from AI could put pressure on its software business.
Fortinet (FTNT) stock also fell 20% after the cybersecurity company reported its third-quarter results. Shares of peers CrowdStrike (CRWD), Okta (OKTA) and Palo Alto Networks (PANW) fell but pared losses throughout the session.
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What’s behind this move: ServiceNow’s current remaining performance obligations (CRPO), or projected revenue in the coming months, are expected to increase 18.5%, compared to 19.4% expected by Wall Street.
ServiceNow CFO Gina Mastantuono pushed back on investor reaction to the move in light of the overall results.
“CRPO, while it’s a good metric that indicates what next year’s revenue will look like, it’s not perfect. It’s a nuanced accounting metric that doesn’t necessarily capture the full dynamics of the business,” she told Yahoo Finance on Thursday.
Wall Street remained rather optimistic about the stock. Brian Schwartz, an analyst at Oppenheimer, says the company’s adoption numbers show it isn’t disrupted by AI, even if growth isn’t accelerating yet.
“In our view, ServiceNow’s AI momentum runs counter to a disruption thesis, even if it does not establish a clear path to organic reacceleration,” Schwartz wrote, advising clients to buy earnings decline after earnings decline. The analyst has a Buy rating and a $165 target on the stock.
109.67 -40.46 (-26.95%)
Closing: October 29 at 4:01:07 p.m. EDT
109.01 -0.66 (-0.60%)
NOW FTNT
At the same time, Fortinet’s third-quarter results beat estimates, but its full-year services revenue forecast was lowered to $5.15 billion from $5.17 billion, down from its previous forecast of $5.18 billion to $5.22 billion and below Wall Street estimates of $5.2 billion, according to Bloomberg data.
“Fortinet’s reduction in services revenue guidance implies lower connection rates from network and secure access service bundles on its firewall platform,” Bloomberg Intelligence analysts noted.
Following the results, Wall Street analysts lowered their valuations on the stock, with BofA downgrading Fortinet to neutral and setting a price target of $140 per share.
Mizuho Securities lowered its price target from $160 to $118, while analysts at Piper Sandler reduced their target from $175 to $140.
What else do you need to know: Cybersecurity stocks have been the biggest beneficiaries of AI trading in recent weeks as the use of agents soars, increasing demand for security and authentication measures.
Ines Ferre is a senior business reporter for Yahoo Finance, covering the U.S. stock market, publicly traded companies and commodities.
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