Software Earnings Lift Nasdaq as Tech Outperforms

We think the Nasdaq 100 (NDX) will close up 0.5% tomorrow, driven by robust earnings reports from enterprise software companies.

ServiceNow (NOW) is set to report Q3 results after the close today. We expect the company to beat consensus earnings per share by approximately 5% and raise its full-year revenue guidance by about 1.5%. Demand for IT workflow automation and digital transformation services remains strong, indicating that corporate spending on software infrastructure is holding up. This positive outlook for ServiceNow (NOW) is a key bellwether for the broader enterprise software sector and will likely lead to a 6.0% move in its shares, providing a significant tailwind for other software and cloud companies like Microsoft (MSFT) and Salesforce (CRM).

This positive sentiment from software earnings will likely extend to other mega-cap technology names. Nvidia (NVDA) is expected to gain 1.0% as investors continue to price in strong demand for its AI accelerators, complementing the enterprise software narrative of increased digital investment. Taiwan Semiconductor Manufacturing (TSM) is also poised for a 0.9% rise, benefiting from sustained global demand for advanced chips. The underlying mechanism is simple: when core enterprise software companies show robust growth, it signals healthy business investment, which directly translates to increased demand for cloud infrastructure and the chips that power AI applications.

Amazon (AMZN) and Alphabet (GOOGL) will also participate in this tech-led rally. Amazon (AMZN) is projected to climb 0.6% on the back of strong cloud computing momentum from Amazon Web Services (AWS), while Alphabet (GOOGL) will see a 0.7% gain, reflecting solid advertising revenue trends and continued progress in its AI initiatives. These companies represent key pillars of the digital economy, and their upward movement reinforces the narrative that big tech continues to drive market performance, pulling the S&P 500 (SPX) up by 0.3%.

What would change our mind? A significant earnings miss or cautious guidance from ServiceNow (NOW) after the close today would immediately challenge our thesis, potentially causing a reversal in tech sector sentiment. Additionally, an unexpected hawkish surprise from the final Q2 GDP revision or Initial Jobless Claims at 8:30 AM ET could spook bond markets, sending Treasury yields (US10Y) sharply higher and dampening appetite for growth stocks.