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Key Summary
Recently, software subscription stocks announced strong earnings surprises for Q1 2026 (FY Q3 for Microsoft), signaling that they have entered the AI monetization stage.
This article reviews the fundamentals of the software sector and the macro dynamics of the Nasdaq market through the earnings of Microsoft (MSFT) and ServiceNow (NOW).
Current Situation Summary
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Currently, the software sector is experiencing a market where stock price volatility is maximized depending on future guidance and the macro environment, even after announcing strong earnings.
Big tech leaders are driving cloud infrastructure growth based on massive capital expenditures (CAPEX) and firmly supporting the Nasdaq market.
As of intraday on May 1, 2026 (provisional), the Nasdaq remains at a high level, recording 24,892.31 points.
At the same time, the KOSPI is passing 6,598.87 and the KOSDAQ 1,192.35, while the KRW/USD exchange rate is under a strong dollar (DXY) trend at 1,477.00 won.
According to Daily Stock's proprietary Fear & Greed Index, the Nasdaq is currently in the Greed (66.6) stage, indicating robust investor sentiment.
This shows a distinct recovery from Greed (66.7) a week ago, Extreme Fear (13.7) a month ago, and Fear (32.4) three months ago.
The KOSPI Fear & Greed Index has also entered the Greed (76.3) phase, reflecting a preference for risk assets.
It recorded a clear upward trend compared to Greed (63.9) a week ago, Fear (26.5) a month ago, and Neutral (48) three months ago.
Financial Analysis
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ServiceNow (NOW)'s subscription revenue for Q1 2026 reached $3.671 billion, up 19% year-over-year on a constant currency basis.
Adjusted EPS was $0.97, significantly beating market expectations, and cRPO (Current Remaining Performance Obligations), a barometer for future performance, also exceeded guidance at $12.64 billion.
Microsoft (MSFT) proved its overwhelming performance in FY Q3 2026 with total revenue of $82.9 billion (+18% YoY) and adjusted EPS of $4.27.
In particular, the cloud Azure division grew rapidly by 40%, and the AI-related annualized revenue run rate surpassed $37.0 billion, generating substantial cash flows.
| Company | Latest Quarter Revenue (2026) | YoY Growth | Adjusted EPS | Earnings Surprise |
|---|---|---|---|---|
| ServiceNow (NOW) | $3.77B | +22.1% | $0.97 | Beat |
| Microsoft (MSFT) | $82.9B | +18.0% | $4.27 | Beat |
Valuation
Currently, Nasdaq 100 large-cap growth stocks are justifying a high valuation premium over the S&P 500 based on strong free cash flows (FCF).
However, if upward pressure on the 10-year US Treasury yield (US10Y) continues, there is also a coexisting possibility of EV/Sales multiple contraction for software stocks that pull future earnings forward.
A key issue is whether the hardware strength centered on the Philadelphia Semiconductor Index (SOX) will fully translate into multiple expansion for software application companies.
ServiceNow has stepped up to defend its valuation by upgrading its 'Now Assist' AI target revenue to $1.5 billion for this year.
The intrinsic value of these subscription software stocks can be reevaluated when the VIX (Volatility Index) stabilizes downward and the Dollar Index (DXY) remains range-bound.
The direction of macroeconomic indicators is expected to have a direct impact on multiples as much as the companies' own earnings guidance.
Expert and Institutional Analysis
Wall Street investment banks evaluate the latest earnings of Microsoft and ServiceNow as "the dawn of the Agentic AI era, proven by numbers beyond a mere theme."
The analysis is that beyond simple infrastructure construction, actual price increase effects are appearing in enterprise solutions and cloud environments.
However, some institutions advise keeping a close eye on the pace of CAPEX spending, which companies are aggressively executing to the tune of hundreds of billions of dollars annually.
They point out that if operating margin defense and free cash flow (FCF) improvements are not achieved commensurate with the invested capital, short-term deterioration in investor sentiment will be difficult to avoid.
In conclusion, experts foresee that the process of separating the wheat from the chaff will intensify even within the software sector.
Buying pressure may concentrate only on a few companies that have proven both clear subscription revenue growth rates and the ability to defend profitability simultaneously.
Risk Factors
The first key risk is the retreat of rate cut expectations due to sticky inflation and upward pressure on US10Y Treasury yields.
Rising interest rates increase the discount rate, cutting into the present value of growth stocks and potentially dampening overall investor sentiment for Nasdaq tech stocks.
The second is the fear of peaking out, which will arise if the pace of AI monetization at the end-user level is delayed relative to the massive capital expenditures of companies.
Increased cloud maintenance costs driven by advanced AI models can act as a factor pressuring the margin rates of software companies.
The third is the movement to strengthen regulations related to data sovereignty and antitrust, which could put the brakes on business expansion for large IT companies.
Additionally, as the market is currently in a Greed phase, there is an open possibility that profit-taking volume could emerge rapidly in the event of unexpected negative macro news.
Investment Perspective Summary
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The Nasdaq market is currently in a volatile phase where enterprise value is strictly differentiated according to the qualitative growth of earnings guidance.
It is positive that the benefits of capital expenditures centered on AI infrastructure are gradually spilling over into revenue increases for subscription software companies such as SaaS.
In a situation where the overall market valuation has become somewhat high, a strategy focusing on companies with solid cRPO (Current Remaining Performance Obligations) and constant currency growth rates may be advantageous.
Rather than being swayed by short-term interest rate noise or index fluctuations, it is a time that requires a long-term perspective focused on a company's ability to generate free cash flow.
Key Keywords at a Glance
- **cRPO (Current Remaining Performance Obligations)**
It refers to the value of remaining contracts expected to be recognized as actual revenue within the next 12 months, and is a key leading indicator that best shows the short-term growth potential of SaaS companies.
- **CAPEX (Capital Expenditures)**
It refers to the massive costs companies invest in physical assets or core infrastructure such as data centers, GPUs, and networks to generate future profits.
- **Agentic AI**
Beyond simple Q&A tools, it is autonomous artificial intelligence that sets goals on its own and automates the entire workflow without continuous user intervention.
- **EV/Sales Multiple**
The value obtained by dividing a company's Enterprise Value by its annual Sales, frequently used when calculating the fair stock price of high-growth software companies that still have low profits or are in the red.
- **DXY (Dollar Index)**
An index representing the value of the US dollar against six major currencies. If the strong dollar phenomenon persists, it can adversely affect the translated earnings of multinational software companies generating revenue outside the US.