The Dow Jones Industrial Average was pressured lower today by software-as-a-service leader Salesforce (NYSE: CRM). The Dow ended up losing 330 points, or less than 1%. But its performance hasn’t been pressured by any single stock to this extent since 2008, according to Dow Jones Market Data, revealing just how bad of a day it was for the software company.
Clearly, it wasn’t only the Dow 30 that felt the pressure, as negative sentiment also spilled over to the rest of the software sector, including Monday.com (Nasdaq: MNDY), a platform that helps users organize their workflow. Shares of the SaaS provider tanked nearly 7% to $224 as investors fled for the exits on any companies that resemble software. The selling may have been overdone. But as long as uncertainty remains around the role of AI in SaaS, investors might wait before returning to buy more shares.
Salesforce Effect
Chief among the reasons that Monday.com shares sank today was Salesforce’s Q1 earnings results, which left Wall Street worried. While Salesforce’s revenue grew by over 10% to $9.1 billion, the pace fell short of consensus estimates. The company has set a high bar for itself, and those expectations also affect its peers. Making matters worse, Salesforce expects revenue growth of 7% in Q2, more moderate growth than analysts expected, resulting in the bottom falling out in the stock and the SaaS sector.
Citi analysts blamed results in part to macroeconomic headwinds that have spilled over to the broader software-as-a-service (SaaS) sector. As a result, Salesforce stock suffered its worst trading day since its IPO days while anything software-related got punished in its wake, including Monday.com. While it may be little consolation, Salesforce stock fared even worse than Monday.com, shaving off 20% of its value in its worst performance in two decades.
SaaS and AI Relationship
The selling was likely overdone, but it sends a warning signal to companies about the growth expectations surrounding big technology names as a consequence of AI.
Considering it remains early innings for AI, SaaS companies are figuring out what their role will be in this space, something that takes time to discover and adds to the uncertainty around the space. SaaS companies are highly entrenched in big data, a major component of AI. As a result, companies like Salesforce and Monday.com are likely to figure out their role for the long term. Last year, Monday.com introduced an AI assistant, Monday AI, to support automated emails, tasks and more while the company continues to roll out enhanced AI capabilities like smart columns more recently.
Fundamentals Snapshot
In its Q1, Monday.com reported revenue of $216.9 million, a 34% year-over-year increase. The company also had record free cash flow of $89.9 million and provided upbeat Q2 and full-year forecasts. In response to the results, DA Davidson analysts lifted their price target on the stock from $190 to $230, while Loop Capital Markets attached a “buy” rating on MNDY shares with a bullish $245 price target. According to TipRanks, a dozen Wall Street analysts have assigned a “buy” rating on the stock, with an average price target of $260.
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