ServiceNow AI disruption fears overwhelmed a raised AI contract target on Thursday, as shares sank 25% and headed for the worst day ever. Revenue landed near estimates, but a profit miss and slower contracted-revenue guidance revived concern that AI will upend traditional enterprise software. A new OpenAI ChatGPT plugin partnership did not change the tape.
Key Takeaways
- Shares sank 25% and headed for the worst day ever.
- Revenue was $4.11 billion; adjusted EPS missed at $1.00.
- Full-year AI contract value target rose to $1.7 billion.
- Fourth-quarter cRPO growth guided to 18.5% in constant currency.
Quarter Results Missed the Usual Upside
ServiceNow posted $4.11 billion in revenue, up more than 20%, roughly matching the $4.10 billion LSEG estimate CNBC cited. SiliconANGLE measured growth at 20.5%, $20 million above consensus. Adjusted earnings were $1.00 a share, versus $1.02 expected. Subscription revenue rose 21% to $3.99 billion, and current remaining performance obligations grew 21% to $13.65 billion, Yahoo Finance reported.
Shares dropped 18% in after-hours trading, SiliconANGLE reported, and Yahoo Finance said they fell 19.90% premarket. CNBC said the stock sank 25% on Thursday and was headed for the worst day ever. The Globe and Mail reported a 23% slide and said the shares were set for the biggest one-day drop on record.
Contracted Revenue Guide Did the Damage
Fourth-quarter sales were guided to $4.25 billion to $4.26 billion, below the $4.36 billion analysts expected, SiliconANGLE reported. Fourth-quarter cRPO growth was guided to 18.5% in constant currency, Yahoo Finance reported, after 21% growth in the third quarter.
Chief financial officer Gina Mastantuono said early renewals pulled deals into the third quarter, accounting for about half of its cRPO beat. A higher mix of on-premises public-sector deals will weigh on fourth-quarter cRPO. She said cRPO is a very nuanced accounting metric.
Management still lifted full-year 2026 subscription revenue to between $15.78 billion and $15.79 billion, CNBC reported. Free cash flow rose to $822 million from $592 million, and the free-cash-flow margin target moved to 36% from 35% on lower capital spending.
| Metric | Figure | Comparison |
|---|---|---|
| Q3 revenue | $4.11 billion | $4.10 billion estimate |
| Adjusted EPS | $1.00 | $1.02 forecast |
| Q4 revenue guide | $4.25 to $4.26 billion | $4.36 billion expected |
| Q4 cRPO growth | 18.5% constant currency | 21% growth in Q3 |
| Full-year AI ACV | $1.7 billion | 70% increase from January |
| Non-GAAP subscription gross margin | 80% | 83% previously |
ServiceNow AI Disruption Bets Still Point to Next Year
Net new AI average contract value rose 65%. Chief executive Bill McDermott said ServiceNow expects its AI business to achieve “true acceleration” next year. ServiceNow raised its full-year AI ACV target to $1.7 billion, a 70% increase from January, SiliconANGLE reported.
SiliconANGLE laid out the operating markers behind that book:
- EmployeeWorks, with chatbot Otto, reached $100 million in ACV within three quarters of launch.
- A Super Intelligence Control Tower usage metric is growing 500% month over month. The tool maps agents and protects against prompt injections.
- An OpenAI plugin will let customers access the platform through ChatGPT. A partner group that includes Nvidia will develop joint offerings.
Radke tied the reaction to the newly formed forward-deployed engineering team that embeds in enterprises to build AI solutions. “It’s just going to be a little bit longer of a waiting game, and so I think the market, you know, wanted to see something a little bit sooner,” he told CNBC. “I think you got to wait until next year to really see that inflection.”
Yahoo Finance reported that non-GAAP subscription gross margin narrowed to 80% from 83%, and that GAAP operating margin fell to 9.5% from 17% as amortization of acquired intangibles rose to $198 million from $33 million. The same report showed no stock buybacks, against $584 million a year earlier.
What the Selloff Means for Software Buyers
The Globe and Mail reported that Fortinet fell 26% to a five-month low after slower product-revenue growth and a cut to its service-revenue forecast. Salesforce dropped 4%, Atlassian lost 6%, Palo Alto Networks slid 1.8%, and Zscaler shed 1.1%.
At least 12 brokerages lowered ServiceNow price targets. Raymond James pointed to lagging subscription revenue and backlog growth, with AI initiatives yet to materialize. The S&P 500 Software & Services Index is up only 5% this year, less than half the S&P 500’s gain.
For buyers, the split that matters is a growing AI contract book against slower contracted revenue. A $1.7 billion AI target did not, on this evidence, offset an 18.5% constant-currency cRPO guide or a two-cent earnings miss. Next year’s “true acceleration” is a vendor timeline, not a planning assumption, a timing question also visible in Apollo’s view of zero AI payoff outside tech and in Forrester’s AI cost squeeze.
- Separate AI ACV headlines from cRPO and subscription growth.
- Ask how embedded engineering teams are priced and how productivity is measured.
- Test whether early renewals or on-premises public-sector mix flattered the quarter.
- Plan for sharp share moves even when revenue still grows above 20%.
