For investors in software growth stocks, April was a bummer as the glow of generative artificial intelligence faded and interest rates stayed high. Except for Microsoft stock, a material revenue boost for software companies from gen AI products isn't expected until 2025.
The iShares Expanded Tech-Software Sector ETF, an industry index that includes Microsoft and many big-cap software companies, fell 7.4% in April after dipping 0.9% in March. In 2024, the software index has pulled back 3% after soaring 59% last year amid hype over AI stocks.
"Historically, May is a seasonally stronger month with a 15-year median monthly return of 1.9%," said TD Cowen analyst Derrick Wood in a report.
Microsoft Stock Up 5% In 2024
Microsoft stock has gained 5% in 2024 as its cloud computing business benefits from an alliance with gen AI leader OpenAI. But shares in Adobe are down 22% and Autodesk has retreated 14%. Atlassian has crumbled 27%. Workday has shed 11%.
Meanwhile, Salesforce has edged up 2% while ServiceNow has advanced 2%.
The IBD Computer Software-Enterprise group ranks No. 82 out of 197 industry groups tracked by IBD.
Further, the rise in 10-year U.S. Treasury yields has pressured software stocks.
Earnings Due For Palantir Stock
More earnings reports are expected. ServiceNow reported first quarter results that topped estimates but guidance came in slightly below views.
ServiceNow will host an investor day on May 6 in tandem with its Knowledge customer conference.
Also, Palantir Technologies reports Q1 earnings on May 6. Datadog results are due May 7.
According to Wood, software growth stocks with the highest short interest as a percentage of float include C3.ai, Asana and PagerDuty.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
