Software stocks sold off on Thursday, with the iShares Expanded Tech-Software Sector ETF falling more than 2%. Datadog and Figma led the decline after both flagged rising AI-related costs alongside their quarterly results, dragging down peers including Salesforce, ServiceNow, Workday and Cloudflare.
The iShares Expanded Tech-Software Sector ETF (IGV) fell more than 2% on Thursday, as investors scrutinized software earnings for signs of the cost of running AI features. Datadog and Figma led the slide, both posting sharper losses than the broader sector.
Datadog and Figma miss on margin, not revenue
Datadog beat Wall Street on both revenue and earnings, yet its stock still fell 14.61%. The company's adjusted gross margin came in at 80%, just below the 80.7% analysts had expected. Figma also topped estimates on the top and bottom lines, but its shares dropped 18.06% after the company flagged rising AI inference costs — the ongoing expense of running user prompts through AI models.
Figma CFO Praveer Melwani addressed the margin pressure on the earnings call. According to Yahoo Finance: "As a result, gross margin will vary from quarter-to-quarter in the near term." Melwani said Figma does not charge customers for products still in beta, so the company absorbs the inference cost without offsetting revenue.
Salesforce, ServiceNow and Workday also slide
HubSpot shares plummeted as well after its results, alongside Datadog and Figma. Salesforce and ServiceNow dropped too, with ServiceNow shares down 2%. Workday and Cloudflare fell alongside them, with Workday shares off 2.54%.
The software sector has been trying to rebound since its April lows, as investors worry AI could disrupt the industry's business models and are therefore viewing earnings with high scrutiny. That scrutiny is playing out across the stock market this earnings season. The sector has climbed more than 35% from its April low but remains down 3% year to date.
Source: Yahoo Finance
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