Will the upcoming Q3 earnings season for US software companies become a turning point for market sentiment? Barclays says: unlikely!

According to trading desk sources, Barclays stated in its latest research report that the upcoming Q3 earnings season may fail to serve as a positive inflection point for market sentiment. The primary reason lies in the lingering "dual concerns" at the core of the market:

First, uncertainty persists about how application software companies will specifically benefit from the AI wave (referred to as "AI overhang"). Second, concerns remain over the high capital expenditures (CapEx) of AI hyperscalers.

Barclays believes that even if these concerns may be exaggerated, Q3 earnings are unlikely to provide sufficiently strong data to fully dispel doubts. This has directly fueled risk-off sentiment, with short-term funds continuing to flock to infrastructure software stocks perceived as "safe bets" while remaining cautious on application software.

Barclays explicitly stated that within the infrastructure sector, it favors MongoDB (MDB), citing higher potential for earnings surprises and stronger growth momentum next year compared to the widely popular Snowflake (SNOW).

**Market Uncertainty: Dual Concerns Weigh Heavy, Earnings Season Unlikely to Break the Deadlock** Barclays highlighted the current dilemma in software stock investments at the outset of its report: the market seems to lack many "safe" investment options.

The report attributes this sentiment to two core concerns:

1. **AI Threat Narrative**: Investors broadly worry that AI's disruptive power could negatively impact existing application software companies, creating an "AI overhang." 2. **Capital Expenditure Concerns**: The market also fears that the high CapEx of hyperscale cloud providers to support AI development may affect future investments and ecosystems.

While Barclays analysts disagree with these views, they acknowledged in the report that the upcoming Q3 earnings data may not provide compelling new evidence to overturn these market concerns. As a result, investors seeking certainty will likely continue sheltering in infrastructure software stocks in the near term.

**Weak Macro Signals: Channel Checks and Data Suggest Caution** To support its assessment, Barclays cited multiple macro and industry-leading indicators, all pointing to a cautious outlook.

The bank noted that its latest Value-Added Reseller (VAR) channel survey showed a slight slowdown in Q3 growth expectations. Although Q3 is typically a seasonally weak quarter, this adds pressure to Q4 prospects.

This means investors will focus more on companies' forward guidance than Q3 earnings figures.

For the next quarter, survey results also leaned cautious. While all respondents still expect year-over-year growth, the proportion forecasting 10-20% growth dropped from 25% last quarter to 0%, while those expecting 0-10% growth rose from 75% to 100%.

Additional charts in the report showed weaker trends compared to Q2: - **Employment Data**: Tech industry job postings declined sequentially, with total software engineering job postings growing at a slower YoY rate than Q2, down 1% in October. S&P 500 companies' software engineering job postings showed positive YoY growth but fluctuated significantly from August to October. Contact center job postings remained stable in September and October but stayed in negative growth territory. - ADP wage growth data indicated stable trends across all firms from August to October, though signs of weakness emerged in companies with 250-499 employees. - **Business Confidence**: The NFIB Small Business Optimism Index and Paychex Small Business Employment Index both showed softening trends.

Barclays noted that the only bright spot came from a Salesforce (CRM) survey, revealing heightened urgency among clients to adopt AI. However, this represents more of a "future hope" than a material driver for Q3 earnings.

A survey on customer interest in Agentforce AI products showed: - 86% of respondents reported "significant interest" from clients (up sharply from 63% last quarter), with 100% stating clients plan to adopt within 12 months—86% expecting implementation in 3-6 months (vs. 63% last quarter).

**Infrastructure Showdown: Why MDB Outshines SNOW?** Within the infrastructure sector—the sole area attracting funds—Barclays compared two star stocks, Snowflake (SNOW) and MongoDB (MDB), and expressed a clear near-term preference for MDB.

**Snowflake (SNOW)**: The bank acknowledged the stock as this year's success story, with shares up 60% YTD (vs. IGV Index's 7.3% gain). Barclays recognized its leading position in data integration for AI enablement. However, the report cautioned that elevated market expectations make further post-earnings rallies challenging.

**MongoDB (MDB)**: The report highlighted MDB's strong comeback this year, citing: 1. **Easier Earnings Surprises**: Current market expectations remain low enough to allow room for solid beats in H2. 2. **Clear Growth Catalysts**: A stronger Enterprise Advanced (EA) renewal cycle next year could structurally accelerate revenue growth. 3. **New CEO Debut**: The upcoming earnings call marks the new CEO's first appearance, viewed as an additional positive given their industry reputation.

Based on this analysis, Barclays raised MDB's price target from $345 to $390 and SNOW's from $255 to $290, reflecting market preference for high-growth infrastructure software stocks.