Quarterly report and guidance exceeded expectations, software giant ServiceNow is still being sold by the market, and the impact of AI is shrouded in haze

Source: Wall Street Insights

By YeZhen

ServiceNow delivered a beat on all fronts in quarterly earnings, with subscription revenue surging 21% and the contract value of its AI product Now Assist topping $600 million. Yet investor anxiety over generative AI disrupting traditional software remains unabated, sending the stock down 6% in after-hours trading and marking a 45% plunge over the past year.

Software giant ServiceNow reported better-than-expected quarterly results and sales guidance, but the positive news failed to ease investors’ fears that artificial intelligence could upend its business model, with the stock extending losses in after-hours trading.

In the just-concluded fourth quarter, ServiceNow’s subscription revenue rose 21% to $3.47 billion, and adjusted earnings per share stood at 92 cents – both figures surpassing Wall Street estimates. As of December 31, the number of customers with an annual contract value (ACV) exceeding $5 million climbed to 603 from 553 in the previous quarter, signaling steady expansion of its large-client base.

The company forecast subscription revenue of approximately $3.65 billion for the current quarter, above analysts’ expectations. Additionally, current remaining performance obligations (cRPO) – a key metric measuring near-term bookings – is projected to jump nearly 23% in the quarter, with growth also outpacing forecasts.

Despite the strong earnings, market sentiment remained unboosted, and the stock dropped about 6% in after-hours trading. Prior to this, ServiceNow’s share price had already plummeted 45% over the past 12 months, a far steeper decline than many of its tech peers.

The sell-off underscores intense market skepticism about the prospects of traditional enterprise software leaders, as investors fear generative AI will reshape the industry landscape and erode the market positions of established giants such as ServiceNow, Salesforce and Adobe.

### Management Defends the Company’s AI Strategy

Facing market doubts, ServiceNow CEO Bill McDermott vigorously defended the firm’s AI strategy.

He emphasized that ServiceNow is not merely an application provider with added AI features, but a pivotal platform for enterprises to deploy AI in their operations. He revealed that Now Assist, the company’s flagship generative AI product, has outperformed expectations, with its annual contract value surpassing $600 million by the end of December.

To bolster its AI capabilities, ServiceNow allows customers to integrate most major AI models into its tools. On Wednesday, the company announced an expanded partnership with Anthropic PBC to provide greater access to its Claude model. A week earlier, ServiceNow also unveiled a three-year agreement to strengthen its ties with OpenAI.

Beyond organic growth, ServiceNow is pursuing expansion through large-scale mergers and acquisitions. Last month, the company announced its biggest acquisition to date: purchasing cybersecurity startup Armis for $7.75 billion, a deal expected to close in the second half of the year. In response to speculation that the acquisition was a "necessity", McDermott denied the claim, stating it was a move to expand into new markets. He added that following the Armis acquisition, the company sees no other major market gaps it needs to fill.

Meanwhile, ServiceNow’s board of directors announced an additional $5 billion share repurchase program, primarily aimed at managing dilution effects. The company first unveiled a share repurchase plan in May 2023, which was expanded in early 2025.

Despite management’s attempts to rebuild confidence through strong earnings and strategic expansion, long-term market fears of technological disruption continue to prevail.

Matthew Hedberg, an analyst at RBC Capital Markets, noted that while the earnings report and guidance were largely in line with or even better than expectations, the stock decline was surprising, reflecting deep divisions in the current market over the valuation logic of the software industry.

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