Software stocks fall as Datadog, HubSpot miss forecasts

Software stocks slumped on Friday after Datadog and HubSpot posted quarterly earnings that left investors questioning whether AI-driven growth is sustainable — or if the price tags attached to these tools are just too high.

The sell-off spread across the sector, with the S&P 500 Software & Services Index falling more than 3%. Datadog shares dropped nearly 12% after missing revenue guidance, while HubSpot fell nearly 8% despite beating earnings expectations. The drop underscores a growing unease: companies are racing to embed AI into their software, but customers aren’t necessarily lining up to pay premium prices for it. Many firms are still grappling with whether AI delivers enough return on investment to justify higher subscription costs. Analysts say the weak guidance reflects slower enterprise spending, particularly among smaller and mid-sized businesses that are sensitive to cost increases.

Investors are also parsing whether AI features are creating real value or just marketing hype. Datadog’s revenue rose 25% year-over-year, but it cut its full-year revenue forecast from $2.06 billion to $2.03 billion, citing cautious customer behavior. HubSpot, a marketing and sales platform, reported 26% revenue growth and strong AI adoption in its customer base, but warned that pricing pressure could continue into next year. The contrast highlights a split in the market: companies selling AI-enabled tools are growing fast, but their ability to monetize that growth through higher prices is unproven.

What happens next depends on whether customers push back against pricing or double down on AI tools that prove their worth. If spending slows further, more software firms could face similar downgrades. But if AI delivers measurable productivity gains, companies may accept higher costs. Either way, this week’s sell-off signals a turning point: the AI gold rush in enterprise software is entering a reality check. Investors are no longer satisfied with promises — they want proof.