Economy

Tech Sector Diverges as AI Fears Hit Software Stocks While IBM and Meta Rally

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Jan 29, 2026

THE BARE STORY

Major technology stocks moved in sharply opposite directions on Thursday following a series of earnings reports that highlighted dividing investor sentiment regarding artificial intelligence. The wider software sector entered a bear market, with the iShares Expanded Tech-Software Sector ETF falling approximately 5% in morning trading. Market analysts attributed the sell-off to growing concerns that AI competitors and automation tools could permanently reduce demand for traditional software licenses.

Microsoft shares dropped more than 11%, on pace for their worst daily performance since March 2020. The decline followed a report showing slowing growth in its Azure cloud segment and a 66% increase in capital expenditures. Company executives noted that demand for compute capacity is currently outpacing supply. Similarly, German software firm SAP saw its stock plunge as much as 14% after reporting fourth-quarter cloud backlog growth of 16%, which missed analyst expectations. ServiceNow shares also fell roughly 12% despite beating earnings estimates, as investors questioned the long-term impact of AI on its business model.

In contrast, other major players rallied on positive financial news. IBM shares rose over 8% after the company reported fourth-quarter revenue of $19.69 billion, surpassing estimates. CEO Arvind Krishna announced that IBM’s generative AI book of business has grown to more than $12.5 billion. Meta Platforms also saw its stock surge more than 8% after posting 24% revenue growth and issuing strong guidance. The company unveiled plans to spend between $115 billion and $135 billion on its AI build-out this year.

Executives offered differing views on the industry's shift. SAP Chief Financial Officer Dominik Asam acknowledged that AI could transform software development and potentially shrink the overall market, though he emphasized the company's strategy to adopt these technologies rapidly. Meanwhile, ServiceNow CEO Bill McDermott argued that fears of AI displacing software vendors are misplaced, asserting that enterprise AI will drive future returns.

Same Facts. Different Perspectives.

Two AI models. Two viewpoints. One factual foundation.

Perspective by Claude

• Strong revenue growth and stock rallies for select AI-focused firms IBM shares rose over 8% after the company reported fourth-quarter revenue of $19.69 billion, which surpassed estimates. Additionally, Meta Platforms saw its stock surge more than 8% after posting 24% revenue growth and issuing strong financial guidance.

• Significant capital commitment to AI infrastructure build-outs Companies are heavily investing in the technology, with Meta unveiling plans to spend between $115 billion and $135 billion on its AI build-out this year. IBM’s CEO Arvind Krishna also noted that the company’s generative AI book of business has grown to exceed $12.5 billion.

• Confidence that AI will enhance rather than replace enterprise software ServiceNow CEO Bill McDermott argued that fears regarding AI displacing software vendors are misplaced. He asserted that rather than threatening the business model, enterprise AI is positioned to drive future returns.

How it may affect me

As a U.S. reader:

• Investment portfolios containing software-focused ETFs or Microsoft stock may face volatility, while holdings in companies like IBM or Meta could see gains due to diverging market sentiment.

• Users of cloud computing platforms might experience capacity constraints or delays, as Microsoft executives report that the demand for computing power is currently outpacing available supply.

• The selection of traditional software products available to consumers may evolve or shrink, as industry leaders warn that AI automation tools could reduce demand for standard licenses.

• Significant capital shifts toward AI infrastructure, such as Meta's plan to spend up to $135 billion, signal a long-term prioritization of AI development over traditional software expansion.

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