What Happened?
A number of stocks fell in the afternoon session after investors took profits following a significant rally the previous day. Software stocks pulled back after one of the sharpest sector recoveries on record.
The iShares Expanded Tech-Software ETF gained 15% across the prior three sessions — its best such run ever — while ServiceNow completed a nearly 40% rally in just four sessions from its April lows. With gains of that magnitude in that timeframe, profit-taking is the natural response. The S&P 500 software and services sector fell approximately 3.78% on the day.
Critically, the broader market provided no significant selling pressure as the S&P 500 was essentially flat, the Nasdaq barely changed, and the Dow edged marginally higher. This was sector-level digestion, not a broad risk-off move. Salesforce surrendered nearly half of the previous day's 10%-plus surge as worries about Anthropic's upcoming IPO and Google's $80 billion equity raise added pressure to the rerating. CrowdStrike slipped as pre-earnings caution set in ahead of the June 3 print — the stock rose approximately 70% year-to-date as options markets priced in a 9.5% swing on the result.
The sector's underlying thesis remained intact: the SaaSpocalypse narrative broke, and many names continued to trade well below their 52-week highs. The pullback was the market catching its breath before the next round of data, not reversing course.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Finance and Accounting Software company Workday (NASDAQ: WDAY) fell 6.2%. Is now the time to buy Workday? Access our full analysis report here, it’s free.
- Marketing Software company Sprout Social (NASDAQ: SPT) fell 6.7%. Is now the time to buy Sprout Social? Access our full analysis report here, it’s free.
Zooming In On Sprout Social (SPT)
Sprout Social’s shares are extremely volatile and have had 38 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 12 days ago when the stock dropped 3% on the news that Intuit's plunge spread across the sector and reignited the thesis that generative AI is structurally undermining the legacy SaaS business model.
Intuit Inc (NASDAQ: INTU) shares opened about 19% lower despite the company posting fiscal third quarter results that topped Wall Street expectations, as investors focused on a weaker long-term outlook for TurboTax and plans to cut roughly 17% of its workforce.
The damage was three-layered: TurboTax revenue guidance was cut even as the overall outlook was raised; 17% of the workforce (~3,000 jobs) was eliminated under an "AI restructuring" banner; and KeyBanc, Stifel, and RBC Capital all cut price targets. Intuit's value historically came from the "guided help" layer: wizards walking users through tax filing, bookkeeping, marketing automation. Generative AI threatens to commoditize exactly that layer. When even a beat-and-raise print can't support the stock, the market is pricing a structural rerating, and the contagion spreads to similar SaaS names.
Sprout Social is down 24.6% since the beginning of the year, and at $7.80 per share, it is trading 65.3% below its 52-week high of $22.46 from June 2025. Investors who bought $1,000 worth of Sprout Social’s shares 5 years ago would now be looking at only $111.24.
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