Stock Market Update

[BRIEFING.COM] The major averages have seen little improvement from their opening levels, with selling pressure persisting despite some pockets of relative strength outside the technology sector.

Microsoft (MSFT 521.69, -9.32, -1.76%) is trading lower despite reporting better-than-expected quarterly results and issuing encouraging guidance last night. Shares initially moved firmly higher in after-hours trading but have since surrendered those gains, reflecting continued investor scrutiny of the substantial costs associated with AI infrastructure investment.

Microsoft reported adjusted earnings of $4.89 per share on revenue growth of 18.8% to $92.28 billion, both ahead of expectations. Azure revenue growth accelerated to 48%, exceeding guidance, while the company projected further acceleration to 49-50% next quarter. However, capital expenditures are expected to exceed $50 billion in Q2 and accelerate further in the second half of FY27. Free cash flow declined approximately 27% year-over-year despite strong operating results, reinforcing concerns about the financial demands of the AI buildout.

The weakness extends beyond Microsoft, with several software stocks facing sizable post-earnings declines. ServiceNow (NOW 112.76, -37.36, -24.89%) is plunging after an earnings miss and a relatively modest increase to its full-year subscription revenue outlook overshadowed strong AI adoption. Investors were also disappointed by guidance pointing to slower growth in current remaining performance obligations next quarter. Fortinet (FTNT 134.24, -39.84, -22.88%) is another notable laggard despite beating earnings expectations and issuing generally favorable guidance, with a downgrade to Neutral from Buy at BofA adding to the pressure.

The broad weakness has pushed the iShares Expanded Tech-Software Sector ETF (IGV) down 4.2%, moving the software-focused fund into negative territory for the week. The disappointing reactions underscore the increasingly demanding expectations facing software companies, with investors looking for stronger evidence that AI-related spending and adoption can translate into sustained revenue growth and improved cash generation.