ServiceNow’s AI Boom Can’t Shield It From Geopolitical Headwinds

Wall Street punished ServiceNow on Thursday despite a first-quarter earnings beat that saw adjusted profit per share land at 97 cents and total revenue hit $3.77 billion — both ahead of consensus estimates. The stock tumbled 17.66% in a brutal session that erased billions in market value, as investors zeroed in on a cautious full-year outlook laced with geopolitical uncertainty.

The selloff wasn’t about the numbers themselves. Subscription revenue climbed 22% to roughly $3.7 billion, and the company signed 16 new contracts worth over $5 million each — a nearly 80% surge from a year earlier. What rattled the market was management’s decision to bake additional safety buffers into its guidance, citing delays on several large on-premise deals in the Middle East. Finance chief Gina Mastantuono told CNBC the approach reflected a “prudent assessment” of the geopolitical landscape, with those conflicts shaving roughly 75 basis points off subscription revenue growth.

AI Momentum Accelerates

Beneath the surface, ServiceNow’s pivot toward artificial intelligence is gaining serious traction. The company raised its 2026 revenue target for AI-specific products to $1.5 billion, a 50% upgrade from its previous forecast. Chief Operating Officer Amit Zavery noted that half of all new business now comes from usage-based pricing models such as token billing, marking a decisive shift away from traditional SaaS licenses toward the era of autonomous AI agents.

The Now Assist generative AI suite is driving much of that momentum, with the company embedding AI capabilities across every product category. This hybrid approach is fundamentally reshaping ServiceNow’s business model, though the market appeared more focused on near-term headwinds than long-term transformation.

Should investors sell immediately? Or is it worth buying ServiceNow?

The Armis Factor

ServiceNow’s full-year subscription revenue forecast of nearly $15.8 billion — representing growth of over 22% year-over-year — looks impressive at first glance. But the increase is almost entirely attributable to the $7.75 billion acquisition of cybersecurity startup Armis, which closed on April 20. Strip out that deal, and the organic outlook remains unchanged despite the strong start to the year.

The integration costs are weighing heavily on profitability. Management trimmed its free cash flow margin target for the current year to 35% and nudged the operating margin guidance lower. The drag from absorbing Armis, combined with the earlier Veza acquisition completed in March, means investors won’t see margin normalization until 2027 at the earliest. That timeline spooked the market and dragged down other software names including Salesforce and Oracle.

Analysts Stay Bullish

Wolfe Research responded to the tempered visibility by cutting its price target to $125 while maintaining a buy rating. The stock now sits near its 52-week low of roughly $81, a level that some analysts view as an entry point given the underlying business fundamentals remain intact.

Management noted that several of the delayed Middle East contracts have since closed, suggesting the geopolitical drag may prove temporary. For now, though, the market is weighing the promise of a booming AI business against the near-term pain of a costly acquisition and an uncertain global environment. ServiceNow must now demonstrate that the Armis integration will deliver the anticipated synergies in security and workflow automation — a task that will define its trajectory through 2027.