Software companies are fighting back with AI. The stocks are still hurting.

Core Insights - The software sector has lagged behind other tech areas despite the overall market rally driven by artificial intelligence (AI) [1][2] - Major software companies like Adobe and Salesforce are experiencing stock price declines despite reporting revenue growth, while ServiceNow's stock has risen [3][4] Company Performance - Adobe reported third-quarter revenue of $5.99 billion, an 11% increase year-over-year, while Salesforce's revenue grew 10% to $10.2 billion, and ServiceNow's revenue rose 23% to $3.22 billion [3] - Adobe's stock trades at 15.2 times expected earnings, down from 21 times at the beginning of the year; ServiceNow trades at 49.8 times, down from 63.5; Salesforce's forward P/E is 19.9, down from 30 [6] Market Sentiment - There is a disconnect between the strong financial results of software companies and investor concerns regarding the impact of AI on their business models [4][5] - The iShares Expanded Tech-Software Sector ETF has only risen 0.6% this year, underperforming the S&P 500's 12% gain [6] AI Integration - Adobe reported that AI-influenced annual recurring revenue surpassed $5 billion, with 99% of Fortune 100 companies using AI in Adobe applications [7] - Other software companies like Snowflake, Datadog, and JFrog have seen revenue acceleration due to AI [8] Customer Retention - Despite fears of AI replacing software functions, enterprises are likely to remain loyal to existing software providers due to the "stickiness" of these services [9][10]