Software Index

State of the Market

ServiceNow's third-quarter results demonstrated continued resilience in enterprise workflow software amid heightened scrutiny of software valuations. Total revenue reached $4.1 billion, up 20.5% year over year, while subscription revenue increased 21% and current remaining performance obligations (cRPO) expanded 20.5% to $13.65 billion. The company raised its 2026 AI annual contract value target to $1.7 billion, up from $1.0 billion at the beginning of the year, although GAAP operating margin declined to approximately 9.4% from 16.8% a year earlier. Despite strong revenue growth and an improved AI outlook, shares fell more than 17% in after-hours trading as a modest adjusted earnings miss and guidance for slower fourth-quarter cRPO growth weighed on investor sentiment. The results highlight both the growing monetization of enterprise AI and investors' increasing focus on forward revenue visibility, profitability, and the sustainability of growth among software providers.

Equity markets navigated mixed signals in October, with the S&P 500 posting a modest gain of 1.2% despite sharper pressure on technology shares. The Nasdaq declined 1.2%, driven mainly by concerns over the financing and returns of heavy AI infrastructure spending. The Dow showed resilience, reflecting ongoing differentiation among sectors as investors weighed solid growth against rising prices.

Labor data provided a clear softening signal. September nonfarm payrolls rose by only 29,000, well below expectations of roughly 90,000, while the unemployment rate edged up to 4.2% from 4.1%. Wage growth moderated to 3.0% year over year. These figures, combined with prior-month downward revisions, reduced the likelihood of an immediate further rate increase and highlighted a labor market that has lost momentum.

Inflation reaccelerated in September. The Consumer Price Index climbed 0.6% month over month and 3.7% year over year, up from 3.4% in August, largely on energy costs. Core measures also increased, though less dramatically, with core PCE, the Fed’s preferred gauge, rising to 3.1% year over year from 3.0%. Producer prices rose more sharply, reinforcing the sense that price pressures have not fully subsided.

The Federal Reserve held its target range at 3.75–4.00% on October 28, following a 25-basis-point increase in mid-September. The decision was split, with two policymakers favoring another hike, and markets continue to price a likely increase at the December 8–9 meeting. Policymakers continue to emphasize a data-dependent approach amid competing risks.

Growth remains a relative bright spot. Third-quarter real GDP expanded at a 3.4% annualized rate in the government’s first estimate, up from 2.2% in the second quarter, supported by solid consumer spending and business investment, particularly in computer equipment. Retail sales also held up in September, though higher gasoline prices drove much of the gain.

Trade developments offered a modest constructive note. The United States and China agreed to reciprocal tariff reductions on $60 billion of nonsensitive goods and extended their broader truce, providing some near-term predictability. At the same time, ongoing geopolitical tensions in the Middle East have kept oil prices elevated, with WTI near $102 and Brent near $115 per barrel, posing cost risks for consumers and businesses.

Looking ahead, investors face a familiar balance of supports and constraints. Steady growth and selective trade de-escalation create opportunities, yet labor softening, renewed inflation readings, and elevated energy prices introduce caution. The November 3 midterm elections, the October jobs report on November 6, the Federal Reserve’s December 8–9 meeting, and further clarity on AI capital spending returns will shape sentiment into the final months of the year.