ServiceNow’s now stock was sold off after the company told investors that its own AI tools will eventually mean fewer users, even as it delivered first-quarter results that beat its outlook on both the top and bottom lines. The software maker, a key player in IT service management, HR and customer service, tried to reassure Wall Street with a slightly higher full-year forecast, but the market focused on what comes after the current growth surge.
Subscription revenue rose 19% year over year in the first quarter, helped by organic growth and three acquisitions: MoveWorks, Veza and Pyramid. Veza and Pyramid closed in March and had only a limited effect on the top line, while MoveWorks contributed across the full quarter. ServiceNow also closed its acquisition of Armis in April, earlier than expected. Even with that boost, management said the strong organic showing was enough on its own that it did not need to lift full-year guidance more aggressively.
The company’s underlying demand signal looked solid. Remaining performance obligation growth climbed 25% year over year, and ServiceNow said it has a backlog of $27.7 billion, including $12.6 billion it expects to realize over the next 12 months. At its analyst day, the company laid out a path toward $30 billion in subscription revenue, up from $12.8 billion in 2025, and said it now expects $15.7 billion in subscription revenue in 2026.
That long-range plan depends on making more money from AI even as the technology is expected to reduce the number of users. ServiceNow said Now Assist could reach 30% of annual contract value, up from about 10% this year, and it expects a Rule of 40 score above 60 in 2026. Management also wants to reduce stock-based compensation, increase share repurchases and reach neutral dilution next year. The stock still trades for less than 6 times sales expectations for the year, with a forward price-to-earnings ratio of 22 and earnings per share expected to climb at an average rate of 22% over the next two years.
The tension for investors is straightforward. ServiceNow is still growing at a healthy clip, but 2026 has been punishing software stocks as markets worry artificial intelligence will weaken demand for enterprise software over time. ServiceNow’s own pitch is that AI will expand what customers buy from it, not just automate away seats. Its recent warning suggests the transition may arrive faster than the market is willing to price in.
