Monday.com Stock Plunge: AI Fears Trigger Major Selloff Amid Weak Guidance and Shrinking Margins

Monday.com's stock plummeted 26.5% after Q2 results beat expectations but guidance fell short, sparking concerns about AI disrupting traditional business models in the software industry. The company's GAAP operating margin slipped to -3.9% from a positive 0.8% a year earlier, and free cash flow margin declined 20.1%. The selloff reflects broader fears about AI's impact on the sector, with SAP, the biggest software company by market value, also experiencing a sharp drop.

Monday.com's stock experienced a significant drop of 26.5% following the release of its Q2 2025 earnings report, despite the company beating analysts' expectations. The stock decline underscores broader industry concerns about the impact of artificial intelligence (AI) on traditional software business models. The company's GAAP operating margin slipped to -3.9% from a positive 0.8% a year earlier, while free cash flow margin declined by 20.1% [1].

The financial results, while showing a 27% year-over-year revenue increase to $299 million, were overshadowed by cautious Q3 revenue guidance and a projected decrease in operating margin. Monday.com projected Q3 revenue to be between $311 million and $313 million, slightly below the midpoint of analyst expectations. The company also expects the operating margin for Q3 to decrease to 11% to 12%, down from 15% in Q2 [2].

The selloff reflects broader fears about AI's impact on the software sector. Monday.com is investing heavily in AI to integrate it into its platform, but investors are concerned that AI-generated search summaries could hurt click-through rates on ads. This has impacted small-business leads, but large-enterprise demand remains strong. Monday.com is doubling down on large-enterprise clients while continuing to sell its flagship work management tools [1].

The broader software sector has been affected, with major players like SAP SE experiencing substantial losses. SAP, Europe's largest company by market value, dropped by as much as 7.1% in Frankfurt, erasing nearly €22 billion ($26 billion) at the session low. Other companies, such as Sage Group Plc and Dassault Systemes SE, also slid, following a similar trend seen among U.S. tech giants like Salesforce Inc. and Workday Inc. [3, 4].

Monday.com's stock price decline highlights the challenges faced by software companies in the AI era. As AI tools become more capable of creating applications quickly and at significantly lower costs, traditional software companies may face increased competition. Monday.com and other software companies are adapting by integrating AI into their platforms and focusing on large-enterprise clients [1].

References:
[1] https://www.calcalistech.com/ctechnews/article/jrnl8z0fb
[2] https://site.financialmodelingprep.com/market-news/monday-com-surpasses-q2-earnings-expectations-but-faces-stock-decline
[3] https://www.reuters.com/business/software-stocks-europe-fall-concerns-over-ai-pitfalls-2025-08-12/
[4] https://www.ainvest.com/news/ai-revolution-turns-guide-navigating-sector-creative-destruction-2508/