Cloud software stocks experience a surge in demand as ServiceNow and Qualtrics exceed expectations.

• On Wednesday, two prominent cloud software companies, ServiceNow and Qualtrics, surpassed expectations by delivering better-than-anticipated results and providing guidance that also exceeded expectations.
• The sector that had been struggling recently saw a surge in stocks after hours, with both stocks experiencing significant gains.
• Bill McDermott, CEO of ServiceNow, stated on the company's earnings call that there is a persistent demand for their services.

Maybe cloud investors just needed a little reassurance.

Despite a recent 38% drop from its all-time high in November, two key members of the group reported optimistic numbers on Wednesday, resulting in an after-market rally in their share prices.

The stock of ServiceNow, which automates back-office IT tasks and workflows, increased by 10% following better-than-anticipated first-quarter results and an optimistic forecast for the year.

Qualtrics, a customer experience software provider, experienced a more than 9% increase in stock price following its successful fourth quarter performance and exceeding expectations for the upcoming year.

The Nasdaq is experiencing its worst month since 2008 as tech stocks entered earnings season in a downward spiral, with most of the companies that have reported so far providing signs of optimism.

Bill McDermott, CEO of ServiceNow, stated on the earnings call that the company is experiencing a sustained demand environment after reporting 29% growth in the fourth quarter and predicting 26% growth in subscription revenue for the year.

This week, Microsoft and Intel surpassed expectations on both the top and bottom lines, while IBM and Tesla also reported better-than-expected results. However, among the major companies, only Netflix disappointed investors as its subscriber growth prediction fell far below estimates.

Proving time for cloud stocks

Aside from Netflix, the selloff has not been about business fundamentals.

The Federal Reserve's indication that it may soon increase its benchmark rate for the first time in over three years has largely contributed to the market's recent decline.

The WisdomTree Cloud Computing Index experienced a 146% increase from the end of 2019 to October 2020, while the S&P 500 only rose by 43% during the same period.

Despite recent trends on Wall Street and the severe multiple compression in certain sectors, cloud companies have the chance to demonstrate that their growth story remains intact.

The adoption of digital technologies and cloud services by businesses, government agencies, and large organizations worldwide is accelerating, with no indication of a slowdown in the shift from legacy software to the cloud.

On Wednesday, Qualtrics CEO Zig Serafin stated that his company has a "10-year advantage" in experience management and assisting clients in utilizing their data to take action.

"We have a significant opportunity ahead in a world where customers can easily switch service providers and employees are leaving their jobs at an unprecedented rate," Serafin stated.

In the fourth quarter, Qualtrics experienced a 48% increase in year-over-year revenue and predicted growth of at least 30% for 2022.

In the upcoming weeks, the cloud sector will have ample chances to demonstrate that concerns about inflation and rising interest rates have not yet negatively impacted demand.

The software collaboration vendor will release its results on Thursday, followed by other companies in early February.

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