ServiceNow (NOW) just delivered the kind of results in the first quarter that usually send a stock higher. Revenue and earnings beat estimates, subscription growth exceeded 20%, and management raised full-year guidance.
Yet shares plummeted 18% in a single day.
Investors are concerned about how AI will impact the company’s organic growth, margins, and valuation multiple going forward.
Raised subscription guidance
ServiceNow’s biggest positive Q1 development was the raised full-year subscription revenue outlook to $15.735-$15.775 billion, which implies 22-22.5% year-over-year growth for the full year, after Q1 subscription revenue rose 22% to $3.671 billion.
But in the market’s eyes, the good news ended there, with the stock crashing nearly 18% on April 23 following earnings.
It’s reassuring to see that most analysts following ServiceNow still believe in the company’s product, moat, and general competitive positioning.
With the stock still down roughly 60% from its 52-week high, the key question is whether ServiceNow can reignite growth and sustain its margins enough to earn back a premium valuation.
Organic growth under scrutiny
Management said delayed large on-premises deal closures tied to the Middle East conflict cut Q1 subscription revenue growth by roughly 75 basis points, arguing the shortfall was due to timing. However, if those deals were lost rather than deferred, ServiceNow’s growth visibility could fall further.
Current remaining performance obligations rose 22.5% year over year to $12.64 billion, but analysts questioned how much of that growth was organic after accounting for acquisition effects. That leaves the next quarter’s organic cRPO trend as the clearest test of whether the raised guide reflects real demand or a narrow timing bridge.
Following the first-quarter results, BMO Capital cut its price target from $120 to $115 but kept an Outperform rating, saying the results and guidance were largely in line, except for M&A and weaker organic cRPO guidance.
Other firms also lowered targets after Q1 fiscal 2026 results, including Needham to $115, BTIG to $150, Mizuho to $140, Wolfe Research to $125, and Stifel to $120. The common themes were delayed Middle East deals, softer organic subscription outlook, and the risk that M&A integration pressures margins.
That pullback reflects concern about the quality of growth, not a collapse in competitive positioning. Several firms maintained positive ratings, and the broader backdrop still supports the AI case, with enterprise software demand holding up despite near-term deal-timing noise.
AI upsell is turning into revenue
ServiceNow showed that their AI product, Now Assist, is moving beyond pilots and landing at scale in large accounts.
Management said the number of customers generating more than $1 million in annual contract value from Now Assist jumped more than 130% year over year. It also highlighted 16 deals worth more than $5 million in net new ACV.
That matters because the expanding spend within ServiceNow’s installed base carries lower friction, supports retention, and increases contract value without relying on new customer wins.
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ServiceNow’s “AI control tower” pitch also sharpens the strategic case. The company is positioning itself as the workflow layer that coordinates activity across enterprise environments, rather than just adding AI features to separate modules.
If that positioning works, AI could become a force multiplier for broader platform adoption rather than a narrow product add-on.
Security deals expand TAM, raises execution risk
The acquisitions of Veza and Armis broaden ServiceNow’s push into security and identity and expand what it can sell to existing customers.
Veza closed on March 2, 2026, and Armis closed on April 20, 2026. Strategically, Veza strengthens identity and access capabilities, while Armis adds cyber asset intelligence. Both give ServiceNow more products to sell into an existing enterprise customer base.
In the best case, Veza and Armis expand the company’s total addressable market and increase wallet share across current accounts. In the near term, though, integration spending, go-to-market changes, and product overlap could pressure margins before cross-sell appears in bookings.
For now, the market is likely to treat acquisition-driven growth cautiously until ServiceNow proves these deals translate into clearer platform value.
What could push NOW higher
- Middle East deals closing would validate management’s timing explanation and support the raised outlook.
- Deeper Now Assist adoption would raise ACV per customer and reduce reliance on new-logo growth.
- Broader adoption of the AI control-tower model would strengthen platform centrality and improve expansion economics.
- Veza and Armis could help if ServiceNow converts them into cross-sell wins without pressuring margins.
What could continue pressuring NOW shares
- Results that are merely “fine” may not be enough, as investors keep selling software names that aren’t clearly winning in AI.
- Organic cRPO staying weak would undermine confidence in demand and guidance.
- Acquisition-driven growth could mask slower core momentum and pressure the stock’s premium valuation.
- Integration costs from Veza and Armis could weigh on margins before revenue benefits appear.
- AI adoption concentrated in a small set of large customers would limit broader revenue reacceleration.
Key takeaways for investors
ServiceNow did what investors usually want: it beat estimates and raised guidance. But that was not enough to settle the quarter’s biggest question.
The bull case is clear. Delayed deals return, AI keeps lifting contract values without materially impacting demand, and Veza and Armis expand the platform without disrupting margins. In that scenario, ServiceNow keeps its premium status because growth comes from high-quality sources.
The bear case is just as clear. Organic demand remains soft, acquisitions blur the underlying trend, and AI strength stays too narrow to offset broader weakness.
The next few quarters will decide which narrative wins. It should be noted that even though the stock looks cheap, there doesn’t appear to be any near-term catalysts that will force a rerating.
Related: Morgan Stanley has a message for ServiceNow investors
