The software and enterprise tech industry faced a challenging week as major players like Salesforce reported deals shrinking or getting delayed. Salesforce experienced a significant drop in its shares, almost 20% on Thursday, the largest decline since 2004. The cloud software vendor posted weaker-than-expected revenue and issued disappointing guidance. CEO Marc Benioff attributed the growth of Salesforce during the Covid age to companies rushing to buy products for remote work. However, customers faced challenges integrating new technology, leading to adjustments required by enterprise software companies post-pandemic.
Companies like MongoDB, SentinelOne, UiPath, and Veeva lowered their full-year revenue forecasts, reflecting the macroeconomic challenges impacting the industry. The WisdomTree Cloud Computing Fund, which tracks cloud stocks, experienced a 5% decline, the sharpest drop since January. Several companies including Paycom, GitLab, Confluent, Snowflake, and ServiceNow lost over 10% of their value amidst the industry downturn. The pressure was further exacerbated by the projected narrowing of gross margins due to increased input costs.
Dell, traditionally viewed as a beneficiary of the generative AI wave, faced margin squeezing as the gross margin is expected to narrow by 150 basis points for the year. Despite an increase in the backlog for AI servers, the growing portion of these servers in the product mix contributed to the margin decline. Although Dell bumped up its full-year forecast, the market responded with a 13% slide in shares for the week.
Okta highlighted economic conditions as a hindrance to signing up new customers and expanding existing purchases. The stock price fell almost 9% for the week due to weaker-than-expected subscription backlog. Similarly, at UiPath, a developer of automation software, the pace of business slackened in late March and April. The changing economy and customer behavior impacted the company’s performance, leading to a leadership change with Daniel Dines taking over as CEO.
The shift in buying habits was evident across companies like SentinelOne, which noted customers becoming more hesitant to commit to multi-year deals. As businesses evaluate software differently, the impact of AI is causing companies to reprioritize. Veeva CEO Peter Gassner highlighted the disruption in large enterprises as they navigate their AI plans, with generative AI becoming a competing priority for clients. The stock price of Veeva dropped almost 15% on concerns about spending in the latter half of the year.
While many companies faced challenges, Zscaler’s stock jumped 8.5% after beating expectations for the quarter and raising its full-year forecast. CEO Jay Chaudhry expressed confidence in the company’s platform for cyber and data protection, anticipating strong demand from enterprises looking to adopt their solutions.
The software and enterprise tech industry experienced a tumultuous week marked by revenue forecast cuts, margin pressures, and changing customer behaviors. Companies are adapting to macroeconomic challenges and the impact of AI, requiring them to rethink strategies and priorities in a rapidly evolving landscape. Despite the setbacks, some firms like Zscaler are managing to navigate the challenges successfully and capitalize on growing demand in specific market segments.
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