ServiceNow (NOW) shares fell 5% on Wednesday ahead of its second-quarter earnings report, set to be released after market close. The enterprise software giant faces intense scrutiny as investors weigh whether artificial intelligence could cannibalize its core business model. Analysts expect adjusted earnings of $0.86 per share on revenue of $3.93 billion, roughly 22% year-over-year growth from the $0.82 EPS a year ago.
Options traders are pricing in heightened volatility, with a projected 12.41% swing in either direction — well above the 8.57% average post-earnings move over the past four quarters. The caution reflects the stock's 18% plunge the day after last quarter’s guidance missed expectations, intensifying fears that AI-driven tools reduce demand for user-based software subscriptions.
The AI overhang is the central concern. ServiceNow’s traditional model bills per user, but AI agents capable of handling IT ticketing and incident management could shrink the user base. The company has responded by repositioning itself as an AI orchestration layer, introducing hybrid pricing that layers AI consumption revenue on top of subscriptions. It also completed the $7.8 billion acquisition of cybersecurity firm Armis in April, financed partly by a $4 billion short-term loan maturing in October, which will weigh on margins.
Analyst sentiment remains largely constructive despite the stock’s 33% year-to-date decline. Morgan Stanley initiated coverage with an Overweight rating and a $180 price target, while CLSA launched with Underperform and a $72 target. The average Wall Street target of $139.25 implies 33% upside. The pivotal metric will be the current remaining performance obligation (cRPO) — the 12-month contract backlog — which last quarter triggered the selloff.
ServiceNow has raised its 2026 AI revenue target to $1.5 billion and aims to exceed $30 billion in annual subscription revenue by 2030, with partnerships with Wipro and Accenture to deploy agentic AI across IT, HR, and security operations.
