ServiceNow shares tumble 17.8 per cent after earnings as AI fears overshadow strong fundamentals
Subscription revenue rises 19 per cent to $3.67 billion, yet stock trades near 52-week low amid sector-wide valuation pressure
ServiceNow shares fell sharply by approximately 17.8 per cent following the release of first-quarter earnings, trading near their 52-week low after a broader 52 per cent decline over the past year. The immediate market reaction was negative despite the company delivering robust financial results, driven primarily by investor concerns that advances in agentic AI could reduce reliance on traditional enterprise workflow solutions.
This selloff reflects wider fears across the software sector that artificial intelligence automation might disrupt established business models. Although ServiceNow reported strong underlying fundamentals, the market appears to be pricing in a future where the demand for its core platform could diminish as new AI technologies emerge.
Despite the share price volatility, the company posted solid growth in its core business. Subscription revenue rose 19 per cent year-on-year to $3.67 billion in constant currency, while remaining performance obligations increased 23.5 per cent to $27.7 billion. These figures indicate continued demand, even as management noted some weakness in subscription revenue visibility due to delayed deals in the Middle East caused by ongoing geopolitical tensions.
The company also highlighted accelerating monetisation of its artificial intelligence capabilities, projecting $1.5 billion in AI-specific commitments by 2026. Adoption of its Now Assist generative AI suite has been particularly strong, contributing to a high renewal rate of 97 per cent. However, near-term margin pressure persists following the integration costs related to the Armis acquisition, which has weighed on profitability in the short term.
Looking ahead, Wall Street analysts maintain a Strong Buy rating on the stock, citing a forward earnings multiple of 34 as reasonable relative to the company's growth profile. Analysts project earnings per share to grow by over 26 per cent in 2026, suggesting that the current pullback may offer a strategic entry point for long-term investors despite the prevailing sector headwinds.
