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Software Stocks in Free Fall With ServiceNow Results on Deck

Jeran Wittenstein

(Bloomberg) -- An ugly two months for software stocks is getting worse, and bullish investors are looking to earnings reports this week from ServiceNow Inc. and Microsoft Corp. to stem the tide.

Zoom Video Communications Inc. and ServiceNow fell more than 5% on Tuesday, each extending losing streaks to a fifth consecutive day. The group has been under renewed pressure since last week, despite an earnings report from Atlassian Corp. that was praised by analysts. Both ServiceNow and Microsoft are due to report Wednesday afternoon.

“We all know there’s some frothiness in some of these specialty software as a service companies,” said Jason Benowitz, a senior portfolio manager with Roosevelt Investment Group. “I’m interested in how the market will react when Microsoft reports, because I think everyone is expecting results to be strong.”

Software valuations have come under the microscope amid concerns about whether their break-neck growth is sustainable in a slowing economy and a renewed focus on profitability in the wake of WeWork’s initial public offering stumble. A Goldman Sachs basket of expensive software stocks has fallen 28% from a July peak, with nearly all of that decline coming since the start of September.

Other big decliners on Tuesday included Slack Technologies Inc. and Alteryx Inc., which both fell more than 7%, while Coupa Software Inc.has lost 24% since the beginning of last week.

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