What Happened?
A number of stocks fell in the afternoon session after the April PPI report sent Treasury yields to 10-month highs, with the 10-year yield rising to 4.49%.
This 'sticky and accelerating' inflation data effectively eliminated 2026 rate-cut hopes, raising the discount rate applied to long-duration growth earnings. BNN Bloomberg noted technology-related inflation was emerging as a structural concern, with computer software prices up year-over-year, potentially triggering a pullback in enterprise software spending.
Software companies sell long-duration subscription revenue, recurring contracts whose value is heavily weighted toward future earnings. When Treasury yields rise, the discount rate investors apply to those future cash flows rises with them, which mechanically reduces the present value of the business and compresses the price-to-earnings multiple.
Beyond the rate channel, the PPI print confirmed that software-specific inflation was running well above the headline rate. This 'sticky' pricing power for vendors is a double-edged sword: while it supports current revenue, it risks forcing enterprise customers to consolidate seats or delay new deployments to protect their own margins in a negative real-wage environment.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Sales Software company Freshworks (NASDAQ: FRSH) fell 3.9%. Is now the time to buy Freshworks? Access our full analysis report here, it’s free.
- Design Software company PTC (NASDAQ: PTC) fell 3.5%. Is now the time to buy PTC? Access our full analysis report here, it’s free.
- HR Software company Paycom (NYSE: PAYC) fell 3.3%. Is now the time to buy Paycom? Access our full analysis report here, it’s free.
Zooming In On Freshworks (FRSH)
Freshworks’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 2 days ago when the stock dropped 3.3% on the news that rising treasury yields and renewed Iran tensions hit the software sector. The 10 year jumped to 4.4% as Trump rejected Iran's latest peace proposal, compressing the terminal value multiples (future cash flow discounted back to the present value) that high multiple SaaS names depend on.
The real story was more thematic with 2026 being a difficult year for some software names as investors feared agentic AI would erode the traditional subscription model that powers enterprise software economics. As a result, capital continued to flow into AI infrastructure names like Nvidia and Micron where capex is tangible and earnings visibility remained high. JP Morgan called the sell off "broken logic" while Morgan Stanley noted it was sentiment driven. However, until estimates stabilized, investors continued to grapple with uncertainty.
Freshworks is down 29.8% since the beginning of the year, and at $8.15 per share, it is trading 49% below its 52-week high of $15.98 from May 2025. Investors who bought $1,000 worth of Freshworks’s shares at the IPO in September 2021 would now be looking at an investment worth $171.29.
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