The numbers look good. But the vibes feel bad.<\/p>\n
That\u2019s the dilemma that haunts ServiceNow<\/a> CEO Bill McDermott, with stock market investors continuing to punish the stock despite the company posting solid financial results.<\/p>\n ServiceNow announced its first quarter earnings yesterday, beating consensus Wall Street forecasts for revenue and exceeding the high end of its own guidance across almost every topline and profitability metric. The company\u2019s adjusted earnings per share came in exactly where consensus analyst estimates thought they would. McDermott raised full-year subscription revenue forecasts, and predicted that sales of the company\u2019s AI products would blow through prior projections and end up at close to $1.5 billion for 2026, a figure 50% higher than his prior forecasts.<\/p>\n And yet the stock got crushed in after-hours trading. Investors drove the shares down as much as 14%, with the stock sliding further just after the opening bell on Thursday.<\/p>\n That comes on top of a brutal 45% decline over the past six months. Santa Clara-based ServiceNow has been one of the biggest losers of the so-called SaaSpocalypse, the idea that increasingly capable AI agents from the likes of Anthropic and OpenAI will mean customers will make fewer software purchases<\/a> from traditional vendors, denting their growth prospects.<\/p>\n That narrative has been hard-to-shake, despite there being little empirical evidence for the thesis so far and the fact that plenty of economists, enterprise tech analysts, and tech CEOs\u2014including AI boosters such as Nvidia<\/a> CEO Jensen Huang\u2014think the narrative is wrong<\/a>.<\/p>\n On Wednesday, investors seem to have seized on one line in particular in ServiceNow\u2019s earnings release as a rationale for continuing to dump the stock. That line was an acknowledgement that economic uncertainty caused by the Iran war has made it harder to close some customers, resulting in a 0.75% reduction in subscription sales growth compared to what the company thought it was going to be able to do in the quarter. This meant that the company\u2019s \u201ccurrent remaining performance obligation\u201d (or cRPO, which measures future sales that have been contracted for the current year but not yet delivered) wound up narrowly missing what analysts had expected. <\/p>\n But investors ignored that overall subscription revenue had still expanded at 22% to $3.77 billion in the quarter, a solid figure that beat consensus forecasts and represented an acceleration in growth from prior quarters. And, while it remains far from clear how long tumult in the Middle East will last, that drag on growth is likely to vanish at some point in the coming quarters.<\/p>\n Overall, the company said it made $1.012 billion in adjusted net income, or 97 cents per share, which was in line with consensus forecasts from Wall Street analysts.<\/p>\n Customers aren\u2019t buying AI \u2018parlor trick,\u2019 CEO says<\/p>\n Bill McDermott, ServiceNow\u2019s CEO, told Fortune in an interview on Wednesday prior to the release of the company\u2019s earnings that he believed the negative vibes around the company on Wall Street were starting to dissipate.<\/p>\n \u201cThey\u2019re learning that ServiceNow is an AI platform,\u201d he said. He said the company\u2019s products, which include ways to monitor and govern AI agents from both ServiceNow and other providers, could be \u201cthe rules and rails of modern business.\u201d<\/p>\n He called the SaaSpocalypse idea\u2014that large corporations would want to replace all their longstanding software vendors with more DIY offerings built on AI models\u2014\u201ca parlor trick\u201d that few customers were actually falling for. AI agents weren\u2019t replacing traditional software, but rather reinforcing its value, he said. \u201cThere are two worlds that are integrating. They are not taking each other out. They are cooperating.\u201d<\/p>\n He also said that customers liked that ServiceNow could provide predictability in both how its AI agents performed and, critically, in how they were priced. The company currently offers a hybrid pricing model, where some services are sold on a traditional seat license basis, while others, particularly its newer AI offerings, are priced by usage. \u201cThey get the best of both worlds\u2014the non seat-based pricing innovation, including tokens and assets and infrastructure, hardware and connectors, things like that. But they get the predictability also that comes with the long standing relationship that they have.\u201d<\/p>\n Among the most closely-watched figures in ServiceNow\u2019s earnings release was an update on Now Assist, which is what the company calls its AI product suite. The company said the number of Now Assist customers spending more than $1 million in annual contract value grew more than 130% year over year. (In the fourth quarter of 2025, the company had said there were about 35 customers in that category.) McDermott told Fortune the company is poised to overshoot the roughly $1 billion 2026 AI revenue target it set out in January. \u201cThat\u2019s going to blow past a billion and a half,\u201d he said. \u201cSo we\u2019re going to have to up that by more than $500 million. It\u2019s just unreal.\u201d<\/p>\n Overall, ServiceNow said its products were selling strongly. ServiceNow closed 16 transactions over $5 million in net new annual contract value in the quarter, nearly 80% more than a year earlier, and ended the quarter with 630 customers spending more than $5 million a year\u2014up roughly 22% year over year. More customers were also buying more of ServiceNow\u2019s various offerings. The number of deals that saw customers buying three or more ServiceNow products climbed 70% year over year, the company said, with 36 deals including five or more products.<\/p>\n ServiceNow leans into cyber as Mythos highlights AI threat<\/p>\n ServiceNow also said that it had closed two cybersecurity-focused acquisitions that McDermott has positioned as central to the company\u2019s AI pitch. It completed its purchase of identity and access-governance company Veza on March 2, and on April 20 closed its roughly $7.75 billion acquisition of Armis, an Israeli cyber-exposure and asset-discovery company. (The Veza acquisition price has not been disclosed but is thought to be over $1 billion.)<\/p>\n McDermott said that AI was supercharging cyberattacks, as the recent concern about the capabilities of Anthropic\u2019s Mythos model highlighted. And that, in turn, should drive adoption of ServiceNow\u2019s tools for monitoring network activity and controlling what both people and AI agents can do across customers\u2019 systems as well as automated tools for dealing with alerts and potential security breaches, he said.\u00a0\u00a0<\/p>\n \u201cOne in six data breaches today involve AI-driven attacks,\u201d he said, with the average cost \u201csomewhere between $4.4 and $6 million per attack.\u201d<\/p>\n McDermott also said that ServiceNow is itself seeing big productivity gains from deploying AI tools. He pointed to internal metrics: a half-billion dollars in AI-related value accumulated in 2025, 2.3 million hours saved through employee self-service, and a level-one IT service desk now run by an AI specialist he said is \u201c99% faster than the human agents we had.\u201d ServiceNow, he said, has redeployed \u201c85% of our service desk workforce to higher value work.\u201d<\/p>\n That shift, he argued, should reset how investors think about software. \u201cA well-run company will not be increasing head count, but they will be growing faster if they take the head count that they have already and use the modern systems like ServiceNow to make everybody better, make everybody smarter and make everybody more productive.\u201d He offered a metric of his own: \u201cknowledge per person.\u201d Asked when the market will come around on the stock, McDermott reached for a line often attributed to Warren Buffett (though it actually originated with Benjamin Graham, whose ideas greatly influenced Buffett): \u201cIn the short run, the market\u2019s a voting machine, and in the long run, it\u2019s a weighing machine.\u201d Ever the salesman, McDermott added: \u201cI think that this company is a trillion-dollar company.\u201d<\/p>\n The challenge for now, though, is convincing the market the company should be worth even the $200 billion it was worth 18 months ago.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"The numbers look good. 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