What Happened?
A number of stocks fell in the afternoon session after a confluence of high-profile AI talent departures from Alphabet, and a regulatory overhang pulled the entire communication-services and software complex lower.
Alphabet fell roughly 6%. Microsoft slipped as well. When the two largest software-adjacent megacaps decline together, the sector indices follow mechanically given their index weight. But the deeper driver was the market's persistent fear that AI agents would erode the subscription model that underpins traditional enterprise software economics. That fear had been compounding all year. Salesforce trades around $152, down roughly 43% year-to-date and near its 52-week low. Adobe fell approximately 49% over the past year and has not traded this cheap on earnings in over a decade.
The previous week's Accenture collapse, a near-20% single-day drop after the consulting giant cut its growth outlook and explicitly cited AI compressing demand for traditional IT services acted as a fresh confirmation of the thesis. If the largest IT services firm in the world is signaling that AI is eating its billable hours, investors extend the same logic to the software vendors whose products those hours configure.
The counterargument is that the selling has become indiscriminate. Salesforce is a Rule-of-40 company retiring 10% of its shares through a $25 billion buyback, carrying the largest AI revenue line in the category, and it is acquiring usage-based billing platforms like m3ter precisely to monetize AI agent actions rather than seats. Monness upgraded the stock to Buy the previous week on valuation. The market is pricing the cannibalization as if it already happened; the income statements might be indicating otherwise. But until these companies can prove that AI revenue scales faster than it erodes the legacy subscription base, software might remain in the penalty box even on days when the rest of tech (especially chip stocks) is celebrating.
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:
- Data Analytics company Domo (NASDAQ: DOMO) fell 6.4%. Is now the time to buy Domo? Access our full analysis report here, it’s free.
- Data Storage company DigitalOcean (NYSE: DOCN) fell 5.3%. Is now the time to buy DigitalOcean? Access our full analysis report here, it’s free.
Zooming In On Domo (DOMO)
Domo’s shares are extremely volatile and have had 69 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 6 days ago when the stock dropped 35.7% on the news that the company reported Q1 FY2027 results that technically beat on earnings per share but revealed a balance sheet under significant stress, a disclosure that overshadowed every other number in the release.
The headline financials were mixed but not catastrophic. Revenue of $79.4 million missed the $81.3 million consensus, and billings of $60.4 million came in well below revenue, a pattern that signals customers are consuming existing commitments rather than making new ones. Current subscription RPO fell 2% year-over-year to $222.2 million, meaning near-term revenue visibility is shrinking.
The real story was in the 10-Q. Domo's CFO opened the earnings call by addressing the balance sheet before walking through any results, a signal of how dominant the concern is. The company disclosed it failed to meet the minimum annualized recurring revenue covenant under its credit facility. Under GAAP, that breach requires the debt to be reclassified as current. The company entered into a forbearance agreement with its lender, under which the lender agreed not to accelerate repayment or exercise other remedies while Domo pursues a sale.
Also, a sale appears imminent. Domo's board, which initiated a strategic review in February 2026, updated that a strategic transaction is the "best path to maximize value for shareholders." The company confirmed it is in "advanced negotiations regarding a potential transaction," with a goal to announce a final deal "in the near term," and declined to provide any forward financial guidance. The market's reaction reflects the uncertainty embedded in all of these. A potential acquirer negotiating with a seller that has strained balance sheet, a covenant breach, and a lender whose forbearance is explicitly tied to completing the deal. That is not a position of negotiating strength.
Domo is down 72.1% since the beginning of the year, and at $2.32 per share, it is trading 87.3% below its 52-week high of $18.20 from September 2025. Investors who bought $1,000 worth of Domo’s shares 5 years ago would now be looking at only $29.53.
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