ServiceNow's 18% Drop: AI Fears Continue, But May Be Overblown

Over the past several months, software giant ServiceNow (NYSE: NOW) has been one of the most hotly debated tech stocks in the entire market.

This is evident based on the significant swings in NOW’s share price. After ending 2025 near $150, shares fell to $100 by early February. Around a month later, shares recovered to nearly $125. The stock went on to fall below $85 by early April and then recover above $100 in the following two weeks.

ServiceNow is down in the dumps again following its latest earnings report. The stock saw an approximately 18% single-day plummet, falling to around $85.

The up-and-down trading of the stock in 2026 is largely due to one debate: how artificial intelligence (AI) tools will affect the growth outlook of software incumbents. Given the available information around this company, here is where ServiceNow stands.

Understanding ServiceNow’s Volatility: The AI Debate

The rising capabilities and popularity of artificial intelligence (AI) tools drove much of ServiceNow’s volatility. Generally speaking, many investors worry that the lower barrier to entry into coding will significantly harm the growth of incumbent software companies. Concern comes as these tools could enable customers to internally build systems that they previously relied on ServiceNow for. It is also possible that AI agents could do something similar.

Some investors are selling the stock based on this fear. Others are buying the stock when it drops, believing this fear is overblown. These dueling opinions likely account for most of the volatility in ServiceNow stock. The conflict in the Middle East, which has caused significant volatility in the overall market, is another key factor affecting ServiceNow.

With AI rapidly evolving, it’s difficult to say which side is right. However, given what investors know about ServiceNow’s fundamentals, one can assess whether the market is baking in too much pessimism.

Puts and Takes: ServiceNow Beats, But Organic Growth Outlook Faces Scrutiny

In its latest quarter, ServiceNow provided another set of solid results, as it has done for many quarters. Revenue came in at $3.77 billion, growing by over 22% year over year (YOY). This was very consistent with the company’s growth rates over the past two years. The figure came in slightly above estimates of $3.75 billion. ServiceNow’s adjusted earnings per share was 97 cents, representing 20% YOY growth, and right in line with expectations.

The company also posted an operating margin of 32%, 50 basis points above guidance. This was due to AI driving expense efficiency, showing how the firm is using AI itself to drive down costs.

The company slightly raised its guidance, but in reality, organic growth guidance was essentially unchanged. The firm moved the midpoint of its full-year subscription guidance up by $205 million to $15.775 billion. However, nearly all of this contribution comes from its recently closed acquisition of Armis, which will add 125 basis points of growth during the year.

On the other hand, the company is baking some caution into its outlook due to the uncertainty around the conflict in the Middle East. This seems fair, considering that delays in Middle Eastern deals were a 75-basis point headwind to Q1 growth.

The firm also lowered its margin guidance due to Armis. It sees full-year operating margin coming in at 31.5% and free cash flow margin of 35%. These figures are 50 basis points and 100 basis points lower than past guidance, respectively. Still, this makes sense, as ServiceNow’s past guidance did not include Armis. Acquisitions come with integration costs, so a margin headwind isn’t unexpected.

Analysts Eye Big-Time Upside After ServiceNow’s Fall

Notably, the firm continued to see momentum in its AI offerings. The number of customers spending $1 million or more in annual contract value (ACV) on its Now Assist platform increased by 130% YOY. The firm’s goal was to exceed $1 billion in ACV for Now Assist in 2026. Management said, “We might have understated that a little bit. We're already talking about $1.5 billion now.”

ServiceNow believes that corporations' spending at AI labs is not cannibalizing its business. The firm said, "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, this appears to be true, at least for now.

The firm also made strong statements on how its recent AI acquisitions will strengthen its AI offerings. ServiceNow noted, “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."

ServiceNow shares have fallen to a level that requires fairly undemanding growth long-term. The market seems to be pricing in a scenario where AI has a significantly negative net impact on the company. With AI fears high, the stock’s post-earnings reaction feels more panic-driven than justified. Near $85, NOW’s outlook appears positively skewed long-term.

Despite many lowering their targets post-earnings, analysts remain bullish on the stock. The average of price targets updated after the results is approximately $145. This figure implies more than 65% upside in shares. It is just moderately lower than the MarketBeat consensus price target near $150. Nonetheless, AI fears are likely to cause continued volatility in shares near-term.

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The article "ServiceNow's 18% Drop: AI Fears Continue, But May Be Overblown" first appeared on MarketBeat.