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Sunday's Bonus Content
ServiceNow's 18% Drop: AI Fears Continue, But May Be OverblownSubmitted by Leo Miller. First Published: 4/24/2026. 
Key Points
- ServiceNow has seen several large swings in its share price during 2026 as investors weigh how AI will ultimately affect the company.
- ServiceNow's results were solid, with markets likely overreacting to mixed guidance.
- Analysts continue to eye a large recovery despite lowering targets.
- Special Report: Elon Musk’s $1 Quadrillion AI IPO
Over the past several months, software giant ServiceNow (NYSE: NOW) has been one of the most hotly debated tech stocks in the market. This is evident from the large swings in NOW’s share price. After ending 2025 near $150, shares fell to $100 by early February, recovered to nearly $125 about a month later, dropped below $85 by early April and then climbed back above $100 in the following two weeks.
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Following its latest earnings report, ServiceNow plunged roughly 18% in a single day, falling to about $85. The volatile trading in 2026 centers on one question: how artificial intelligence (AI) tools will affect growth for incumbent software companies. Given what we know about ServiceNow, here’s where the company stands. Understanding ServiceNow’s Volatility: The AI DebateThe rapid rise of AI tools has driven much of ServiceNow’s volatility. Many investors fear that lower barriers to coding will enable customers to build internally what they previously relied on ServiceNow to provide, or that AI agents could replace some of the company's functionality. Some investors are selling the stock on that fear; others are buying the dips, believing the concern is overblown. Those opposing views likely explain much of the price swings. Geopolitical tensions in the Middle East, which have unsettled the broader market, are another meaningful factor. With AI advancing quickly, it’s hard to declare a definitive winner in that debate. But looking at ServiceNow’s fundamentals makes it possible to judge whether the market is pricing in too much pessimism. Puts and Takes: ServiceNow Beats, But Organic Growth Outlook Faces ScrutinyIn its latest quarter, ServiceNow delivered another solid report. Revenue came in at $3.77 billion, up more than 22% year over year (YOY), consistent with its growth over the past two years and slightly ahead of the $3.75 billion estimate. Adjusted EPS was $0.97, up about 20% YOY and in line with expectations. The company reported a 32% operating margin, about 50 basis points above guidance, helped by expense efficiencies partly driven by AI initiatives. ServiceNow nudged its guidance modestly higher, but organic growth guidance was essentially unchanged. The company raised the midpoint of full-year subscription guidance by $205 million to $15.775 billion, and most of that increase reflects the recently closed Armis acquisition, which adds roughly 125 basis points of growth during the year. Management also factored in caution related to the Middle East conflict. That seems reasonable: deal delays in the region were a 75-basis-point headwind to Q1 growth. Guidance for margins was trimmed to reflect Armis. ServiceNow now sees full-year operating margin around 31.5% and free cash flow margin near 35%—about 50 and 100 basis points lower, respectively, than prior guidance. That trade-off is typical when integrating an acquisition, which often brings near-term costs before delivering long-term benefits. Analysts Eye Significant Upside After ServiceNow’s FallThe company also pointed to continued momentum in its AI offerings. Customers spending $1 million or more in annual contract value (ACV) on its Now Assist platform rose 130% YOY. Management had targeted more than $1 billion in ACV for Now Assist in 2026 and said, “We might have understated that a little bit. We're already talking about $1.5 billion now.” ServiceNow maintains that enterprise spending on AI labs is largely incremental and not cannibalizing its business. As management put it, “customers are spending a lot on AI, but that is incremental. It is not replacing what they're spending on us.” Given the company’s strong growth to date, that appears to be the case for now. Management also highlighted how recent AI-related acquisitions will bolster its offerings. “We just got them, and we're building out the story with them, and they're going to set the world on fire with reaccelerating revenue growth,” the company said. Shares have fallen to a level that requires only modest long-term growth to justify, so the market appears to be pricing in a scenario where AI has a substantially negative net impact. With AI fears elevated, the post-earnings sell-off felt more panic-driven than fundamentals-driven. At roughly $85, NOW’s risk/reward profile looks tilted toward the upside over the long term. Despite many analysts trimming targets after the report, sentiment remains largely positive. The average of price targets updated after the results is about $145, implying more than 65% upside from current levels and only slightly below the MarketBeat consensus price target near $150. Still, AI-related concerns are likely to keep near-term volatility elevated. |
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