Chicago Bears quarterback Dave Krieg shows dejection during a game against the Green Bay Packers on October 6, 1996 in Chicago. Green Bay won the game 37-6.

(Albert Dickson/Getty Images)

Stocks fall as software slump drags down the tech sector

Meta, Microsoft, and Tesla all posted earnings beats after the bell yesterday, but market reaction was mixed on worries of ballooning capex.

Tasha Matsumoto

The S&P 500 and Nasdaq 100 traded lower after Microsoft, Meta, and Tesla reported earnings after the bell yesterday. Communications was the best-performing sector, lifted by Meta, which surged after it posted a Q4 earnings beat and record revenue. Tech was the worst-performing sector as traders fled software stocks following Microsoft and ServiceNow earnings. The Russell 2000 posted a modest gain.

Bitcoin fell below $85,000 for the first time since November.

Stocks that moved higher:

After reporting Q4 earnings after the bell yesterday, Southwest Airlines had its best day since 1978 (back when you could still smoke on airplanes) as it expects bag fees and seating changes to quadruple its 2026 profit.
IBM climbed higher after yesterday’s strong Q4 earnings beat.
Innodata skyrocketed after Palantir selected the company to provide AI training data and data engineering services for rodeo analysis.
Comcast rose after reporting mixed earnings results as revenue from the Universal theme parks jumped but Peacock’s losses widened.
Royal Caribbean sailed higher after a solid Q4 earnings report and a rosy outlook buoyed sentiment.
Drugmaker Roche rose as its earnings were in line with analysts’ expectations.

Stocks that moved lower:

Microsoft had its worst day since March 2020 after reporting its Q2 earnings yesterday, which showed a slowdown in cloud growth. In the earnings call, CEO Satya Nadella laid out the company’s strategy for growing its AI infrastructure (which we explain here in plain English).
ServiceNow swooned after yesterday’s postmarket Q4 earnings, as CEO Bill McDermott tried to reassure investors that the company’s recent M&A efforts weren’t made to distract from any looming deterioration in its core business.
Following Microsoft and ServiceNow earnings, traders dumped software stocks, sending Atlassian, Intuit, Workday, Salesforce, and Datadog lower.
Tesla fell despite reporting a Q4 earnings beat yesterday as the company’s annual revenue fell for the first time last year. In the earnings call, CEO Elon Musk said Tesla would be discontinuing production of its Model S and Model X vehicles next quarter.
Air taxi maker Joby Aviation plunged after announcing plans to raise $1 billion in convertible bonds and stock.

Jon Keegan1h

Microsoft shares have biggest single-day drop since March 2020

Yesterday, Microsoft reported strong earnings and revenue for its second quarter, but the stock plunged after-hours. Investors seem to have been concerned about so much of Microsoft’s booked contracts coming from one company — OpenAI — as well as its slowing cloud growth.

Today, it got worse. Microsoft shares sank 10%, suffering their largest single-day drop since the start of the Covid lockdown in March 2020.

Matt Phillips2h

Western Digital beats Wall Street estimates for Q2 sales, EPS

Western Digital posted better-than-expected quarterly sales and earnings-per-share figures after the close Thursday, though the shares slipped after-hours.

Here’s how the results looked:

Fiscal Q2 revenue of $3.02 billion vs. the $2.93 billion consensus analyst expectation, per FactSet.
Adjusted earnings per share of $2.13 vs. the $1.93 analysts predicted.
Fiscal Q3 guidance for adjusted EPS of $2.15 to $2.45 vs. analyst estimates of $1.99.
Guidance for Q3 sales of $3.1 billion to $3.3 billion vs. estimates of $2.98 billion.

Western Digital — and rival Seagate Technology Holdings — were among the market’s best performers last year, rising 282% and 219%, respectively, as data storage became a key bottleneck for hyperscalers.

The shares are romping into 2026 as well, with both stocks up more than 60% in January through the close of trading on Thursday.

Sandisk blows past quarterly earnings expectations, forecasts blockbuster Q3 numbers

It was the best performer in the S&P 500 last year. It’s already doubled in January. And shares are soaring after-hours.

Matt Phillips2h

Southwest Airlines Announces It's Ending Its Open Seating

Southwest logs its biggest gain since 1978 as it says bag fees and seating changes will quadruple profit

Southwest shares closed up 19% on Thursday, their biggest daily gain in nearly half a century.

Max Knoblauch5h

Luke Kawa6h

The slow burn in software stocks is erupting into an all-out bonfire

Good results? Doesn’t matter. Good guidance? Doesn’t matter. Spending a ton to augment your business with AI? You’d better believe it doesn’t matter.

This earnings season, investors have decided that AI is enough of a long-term threat to the earnings power of software companies that the past three months or the next 12 are, at best, the calm before the storm. And heaven help management teams that didn’t offer strong results or a positive outlook.

The slow burn in software stocks has erupted into an all-out bonfire on Thursday, fueled by traders finding any excuse to sell Microsoft and ServiceNow after both reported robust quarterly results. The follow-through is weighing on the likes of Atlassian, Workday, Salesforce, Datadog, and Intuit. Put it all together and iShares Expanded Tech Software ETF is poised for its worst day since the Friday following the Rose Garden reciprocal tariff announcements in April 2025.

Here’s how an assortment of software companies have done on the session after reporting earnings:

Are there babies being thrown out with the bathwater here? Maybe. Probably, even!

But it likely won’t inspire too much confidence to learn that the last time the S&P 500 Software & Services industry group was down at least 20% over a 63-session stretch while the SPDR S&P 500 ETF was positive happened to be June 12, 2000.