IBM and ServiceNow reported Q1 results that pretty much beat expectations, yet failed to reassure investors. IBM posted quarterly revenue of $15.9bn, up 9%, with software revenue growing 11% and free cash flow reaching $2.2bn. Meanwhile, ServiceNow reported Q1 revenue of $3.77bn, including $3.671bn from subscriptions (up 22%), while raising its full-year recurring revenue guidance. Nevertheless, the market penalized both stocks: IBM tumbled 10.3% on Thursday and ServiceNow slumped nearly 15%. The sell-off spread across the industry, with Microsoft shedding 2.7%, Adobe and CrowdStrike losing 3%, and Intuit falling 6.2%.

This sharply negative reaction to earnings stems from growing pessimism regarding software publishers since the release of agentic coding and automation tools last winter. Anthropic is marketing Claude Code as an agentic coding system capable of reading code, editing files, running tests and delivering finished code. OpenAI is also pushing Codex as a tool capable of managing multiple agents in parallel for long-term tasks. With these tools, almost anyone can program custom software, which naturally challenges certain historical competitive advantages of software vendors, particularly barriers to entry.

Conversely, the development of these "AI agents" directly benefits the semiconductor industry, where demand continues to surge, as evidenced by the sector's initial quarterly results. Last week, ASML raised its 2026 revenue guidance to €36bn-€40bn, noting that chip demand remains ahead of supply, driven by investments in AI infrastructure. This week, Texas Instruments reported $4.83bn in revenue and net profit of $1.55bn, with momentum driven by the industrial sector and, crucially, data centers. The stock jumped 10%, pulling ON Semiconductor, Microchip, NXP, and Analog Devices in its wake, all rising between 3.5% and 4.5%. STMicroelectronics added further weight to this thesis with $3.10bn in Q1 revenue, a Q2 target of $3.45bn, a book-to-bill ratio of over 1, and a more constructive outlook on demand, propelling the stock up as much as 10% during the session.

This dispersion is particularly significant: year-to-date, the IGV software ETF has retreated by approximately 18%, while the SMH semiconductor ETF has gained over 30%. It remains to be seen whether software publishers can shift the current narrative, as a return of confidence could trigger a significant re-rating for a sector where valuation multiples are at levels rarely seen in over a decade.