Technology stocks fell for a second straight day on Thursday after software companies Salesforce and UIPath reported disappointing results.
The tech-heavy Nasdaq Composite Index fell 1.1%, its second straight day of declines since hitting a record high on Tuesday.
Salesforce shares fell 19.7% to $218.01, on track for their worst day since July 2004, according to Dow Jones Market Data. The cloud-based software company posted lower-than-expected first-quarter revenue and issued disappointing guidance. The company now expects second-quarter revenue of $9.2 billion to $9.25 billion, below Wall Street's forecast of $9.35 billion.
Chief Operating Officer Brian Milham said Salesforce.com was being affected by “longer deal cycles, deal compression and tighter budget scrutiny.”
Third Bridge analyst Charlie Miner called Salesforce's results a “total mess” and blamed a disappointing growth scenario and slowing profit margin growth for the stock's reaction.
Advertisement – Scroll to continue
“Salesforce remains the undisputed leader in CRM and application software, but its current growth is driven by modest price increases and a long history of cross-selling that contradicts its desire to be seen as an exciting, agile software leader capitalizing on the huge opportunity of AI,” Miner added.
The company is “being overtaken by AI,” DA Davidson analyst Gil Luria said in a note on Thursday. He maintained his neutral rating on the stock but lowered his price target to $230 from $300. But he noted that underlying positive factors, including strong demand for its flagship products, give management the confidence to stick to its full-year revenue guidance.
However, some analysts remained bullish on the stock despite the disappointing earnings. Wedbush analyst Dan Ives described the report as “a small bump in the road to a stronger growth trajectory.” He rates the stock an Outperform and has a price target of $315.
Advertisement – Scroll to continue
“If you can see the forest for the trees, this is a turnaround move from a premier tech company with a massive installed base led by one of the most accomplished CEOs in global tech, and we would buy into the dip in shares this morning,” Ives said in a note on Thursday.
Raymond James analyst Brian Peterson said the 15% selloff in after-hours trading was “overdone” and reiterated his “strong buy” rating on the stock with a price target of $325. He said a slowdown in growth is never welcome, but the magnitude of the slowdown in this case “doesn't change the thesis.”
But Salesforce wasn't the worst-performing company among those that reported earnings; that unwanted honor went to UiPath, which fell 34%.
The enterprise automation and AI software company reported a bigger-than-expected first-quarter loss, lowered its full-year revenue outlook and announced the abrupt departure of CEO Rob Ensslin, who will be replaced by UiPath co-founder and former CEO Daniel Dines, effective June 1.
Okta's results also didn't sit well with investors, with its shares falling 7.8% after rising in premarket trading. The move came even though the security software company raised its full-year profit and revenue outlook.
AI Software Providers
Advertisement – Scroll to continue
C3.ai had a strong fourth quarter, with revenue up 20%, beating Wall Street expectations of a 5% increase. “Demand for enterprise AI is growing, and our first-to-market advantage in enterprise AI puts us well positioned to capitalize on this demand,” CEO Thomas Siebel said in the earnings call. Shares rose 19.4%.
Nvidia shares fell 3.8%, while other chip stocks were mixed. Intel and Advanced Micro Devices both rose, while Qualcomm and Micron Technology fell. Micron's shares were the biggest drop, down 4%.
Google announced plans to invest $2 billion in data centers and cloud services in Malaysia, continuing the tech giant's expansion in Southeast Asia. Shares in Google's parent company Alphabet closed down 2.2%.
Email Callum Keown at callum.keown@barrons.com.
