Key Highlights

● Alkami plunged on October 29 among the steepest decliners in the Russell 2000.

● Third-quarter Revenue of $134.9 million could not offset the software rout.

● ServiceNow had its worst day on record and Fortinet cut service revenue guidance.

● Small caps rose overall while software and AI-linked growth names sold off.

Alkami Technology (NASDAQ:ALKT) reported strong third-quarter revenue growth, but the digital banking software company plunged anyway as a sector-wide software rout swept up growth names.

Growth that did not count

Alkami Technology grew its revenue strongly in the third quarter. It did not matter. The stock plunged on Thursday, October 29, among the steepest decliners in the Russell 2000, according to market data.

The company, which sells digital banking platforms to community banks and Credit unions, reported third-quarter revenue of $134.9 million, according to the same source. That marked solid growth from a year earlier.

No specific reason for the drop was given in the reports. What was clear was the backdrop: software stocks were in freefall.

A brutal day for software

Thursday was a punishing session for software. The iShares Expanded Tech-Software ETF slid sharply, according to market data. One report said the broader software and IT services group fell steeply.

Two large-cap reports set the tone. ServiceNow (NYSE:NOW) suffered its worst day on record, according to one report, after its adjusted Earnings of $1.00 per share missed the $1.02 consensus and ended a six-quarter streak of beats. Fortinet (NASDAQ:FTNT) plunged after its service revenue growth fell short of expectations and it cut its service revenue guidance.

The selling spread quickly. Salesforce (NYSE:CRM) fell, Cybersecurity names such as Zscaler (NASDAQ:ZS) slid early, and smaller software companies were caught in the downdraft. Alkami was one of the hardest hit.

Why investors sold growth

Behind the software rout was a broader shift in what investors are willing to pay for. Alphabet (NASDAQ:GOOGL) suffered its worst day since its 2004 IPO, erasing roughly $500 billion of market value, after reporting negative free Cash Flow as its AI spending surged. Media reports said its results "reignited concerns over mounting AI costs."

One market analyst said that "markets are no longer rewarding companies simply for investing heavily in AI." The worry for software is twofold: that AI could disrupt traditional software models, and that investors are demanding profits and cash flow rather than growth alone.

Small caps rose, software did not

The irony is that small caps overall had a strong session. The Russell 2000 climbed 28.71 points to close at 2,859.22. The S&P 500 slipped 23.59 points to 7,720.39, and the Nasdaq Composite tumbled 365.13 points to 26,184.72.

Investors rotated into health care, financials and real estate, according to market data. One Investment strategist told media outlets: "There's plenty of other places to go with your money outside of the AI trade that have pretty decent prospects." For many investors on Thursday, software was not one of those places.

Not every software name fell. Asure Software (NASDAQ:ASUR) and OneSpan (NASDAQ:OSPN) surged in after-hours trading on upbeat results and forecasts, showing that investors were willing to reward companies with clear upside surprises.

Rates add pressure

Higher interest rates weigh on growth-stock valuations, because they reduce the present value of future earnings. The Federal Reserve held rates steady on Wednesday, but two officials dissented in favour of a hike, and Thursday's data showed GDP growth accelerating and PCE Inflation running hot.

What to watch

Investors will look for more detail on Alkami's results, including its outlook, subscriber growth among banks and credit unions, and margins. Any guidance commentary could explain whether the selloff was purely sector-driven.

Broader software sentiment will be key. Whether the sector stabilises after the ServiceNow and Fortinet shocks, and how rates move ahead of the Fed's December 8–9 meeting, could determine Alkami's direction in the near term.