ServiceNow AI – ServiceNow’s shares fell after investors worried its AI tools could reduce future users, even as the company reported first-quarter results that beat expectations and slightly raised full-year guidance. With subscription revenue up 19% year over year, a backlo
Software companies have been rattled in 2026 by a simple fear: artificial intelligence will cut into demand for enterprise software. either by letting “agents” finish tasks on their own or by replacing parts of existing tools with generative apps.. ServiceNow. a major provider of SaaS software for IT service management. HR. and customer service. acknowledged the concern directly—telling investors at a recent analyst day that its own AI tools will lead to fewer users over time.
That admission came alongside numbers that could have steadied the market.. Management shared first-quarter results that beat its outlook on both the top and bottom lines. and it even moved to slightly raise full-year guidance.. Yet investors still sold the stock after earnings. focusing on the question that has been hanging over the sector: what happens to future growth when AI changes how people buy and use enterprise systems?
The first quarter showed strength on the metrics management most wants to protect.. Subscription revenue rose 19% year over year. and the company’s top line also benefited from three acquisitions completed last quarter: MoveWorks. Veza. and Pyramid.. Veza and Pyramid closed in March and had only a limited impact on the quarter’s top line. while MoveWorks contributed across the entire quarter—an effect that management said would likely have been reflected already in its guidance.
M&A timing, however, cut in another direction. Management closed its acquisition of Armis earlier than anticipated in April, a move that could have pushed full-year guidance higher. During the earnings call, management dismissed that idea and pointed instead to strong organic revenue growth.
Behind the revenue headlines, ServiceNow also highlighted remaining performance obligation growth, which climbed 25% year over year in the first quarter. That performance sits beside a large backlog: $27.7 billion in total, with $12.6 billion expected to be realized over the next 12 months.
At the analyst day. management laid out a roadmap for subscription revenue that starts far below and aims far above the current baseline.. It outlined a path toward $30 billion in subscription revenue, up from $12.8 billion in 2025, and provided guidance for $15.7 billion in 2026.. Management said the growth would be driven by Now Assist. its AI solution. which it expects to reach 30% of annual contract value—up from about 10% this year.
The plan is tied to operating leverage as well. ServiceNow expects to generate a Rule of 40 score above 60 in 2026, a target described as signaling strong operating margin expansion as the business scales.
Company priorities are also shifting under that growth strategy.. Management aims to reduce stock-based compensation and increase share repurchases. with the goal of improving earnings per share after neutral dilution in 2026.. If that plays out as projected. the company expects substantial earnings-per-share growth over the next five years—even as investors wrestle with the unsettling message that AI may shrink user counts.
The post-earnings sell-off has left the stock valued in a way some investors see as unusually supportive.. The shares trade for less than 6 times sales expectations for the year, and the forward P/E ratio is 22.. Those figures sit alongside expectations for earnings per share to climb at an average rate of 22% over the next two years and a path toward consistent earnings growth through the end of the decade.
The timing of the market reaction appears to line up with management’s own projections: AI is expected to take on more value through Now Assist and reach a larger share of contract value. while management simultaneously warned that AI tools could mean fewer users.. At the same time. the company pointed to strong subscription growth (+19% year over year) and a growing backlog ($27.7 billion total). creating a direct tension between near-term investor caution and the longer-term demand and revenue framework management laid out.
Still, not every investing lens is aligned with the “buy after the dip” narrative.. A separate Stock Advisor list highlighted what it believes are the 10 best stocks for investors to buy now. and ServiceNow was not included.. That material also cites Stock Advisor’s total average return of 999% versus 208% for the S&P 500. and notes Stock Advisor returns as of May 14. 2026.. The document further states that the author. Adam Levy. has no position in any stocks mentioned. while The Motley Fool has positions in and recommends ServiceNow. and it references a disclosure policy.
Even with the mixed signals from investors and stock-pickers. ServiceNow’s case right now rests on the same combination repeatedly emphasized in its messaging: strong subscription revenue growth. acceleration in remaining performance obligations. a large backlog. and a defined AI-led target for annual contract value—set against valuation metrics that some see as offering room after the post-earnings drop.
ServiceNow NOW AI Now Assist SaaS enterprise software earnings post-earnings sell-off subscription revenue backlog remaining performance obligations share repurchases