Quarterly report and guidance both exceeded expectations, yet software giant ServiceNow is still being sold off by the market, with the shadow of AI disruption looming.

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The software giant ServiceNow released quarterly results and sales guidance that exceeded expectations, but this failed to ease investors’ anxiety over the potential of artificial intelligence to disrupt its business model, and the stock continued to fall in after-hours trading.

In the recently concluded fourth quarter, ServiceNow’s subscription revenue grew by 21% to $3.47 billion; earnings per share after excluding certain items were $0.92, with both figures surpassing Wall Street estimates. As of December 31, the number of customers with annual contract value exceeding $5 million increased from 553 in the previous quarter to 603, showing steady expansion among large clients.

The company expects subscription revenue of around $3.65 billion for the current quarter, which is above analyst estimates. In addition, a key metric measuring recent bookings—the current remaining performance obligation (cRPO)—is expected to grow nearly 23% this quarter, also faster than expected.

However, the upbeat earnings report failed to boost market sentiment, with its stock price dropping about 6% after hours. Previously, ServiceNow’s stock had already fallen by 45% in the past 12 months, a decline far greater than many of its tech peers.

This wave of selling highlights the market’s sharp skepticism about the prospects for traditional application software leaders, as investors worry that generative AI will reshape the industry landscape and weaken the market positions of established giants such as ServiceNow, Salesforce, and Adobe.

Management defends company’s AI strategy

In response to market concerns, ServiceNow CEO Bill McDermott vigorously defended the company’s AI strategy.

He emphasized that ServiceNow is not just an application provider with added AI features, but a critical platform for enterprises to apply AI in their operations. He revealed that the company’s main generative AI product, Now Assist, performed above expectations and, as of the end of December, had exceeded $600 million in annual contract value.

To strengthen its AI capabilities, ServiceNow allows customers to use most major AI models in its tools. On Wednesday, the company announced an expanded relationship with Anthropic PBC to provide greater access to its Claude model. The previous week, ServiceNow announced a three-year agreement intended to deepen its ties with OpenAI.

Besides organic growth, ServiceNow is also seeking expansion through large-scale acquisitions. Last month, the company announced its largest-ever acquisition: a $7.75 billion purchase of cybersecurity startup Armis, expected to close in the second half of this year. Addressing speculation that the acquisition was a “necessity,” McDermott denied it, stating it was to expand into new markets. He said that after acquiring Armis, the company sees no other major market gaps that must be filled.

Meanwhile, the company’s board announced an additional $5 billion stock buyback plan, mainly to manage the impact of dilution. The company announced its first buyback plan in May 2023 and expanded it in early 2025.

Despite management’s efforts to rebuild confidence through strong performance and strategic expansion, long-term concerns about technological disruption remain dominant in the market.

RBC Capital Markets analyst Matthew Hedberg pointed out that although the earnings report and guidance were largely in line with or exceeded expectations, the decline in share price was surprising, reflecting deep divisions in the current market’s logic for valuing the software industry.

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