ServiceNow Borrows $4 Billion, Buys Back Stock, and Watches Its Shares Get Cut in Half

ServiceNow's stock drops 17.7% after Q1 earnings reveal margin drag from its $7.75B Armis acquisition and Middle East deal delays, despite 22% revenue growth.

The math at ServiceNow right now is hard to reconcile. The company just closed a $7.75 billion acquisition, borrowed $4 billion to help pay for it, and bought back more than 20 million of its own shares in a single quarter — a record pace. Yet the stock has lost nearly a fifth of its value in a week, and analysts are slashing price targets as if the business itself had broken.

The disconnect stems from a first-quarter earnings report on April 22 that, on its face, looked solid enough. Revenue rose 22 percent to $3.77 billion. Free cash flow hit $1.67 billion. Non-GAAP operating income came in at $1.2 billion, good for a 32 percent margin. But buried in the details were two headwinds that spooked the market: geopolitical disruptions in the Middle East that pushed back several large on-premise deals, and the mounting cost of integrating Armis, the cybersecurity firm ServiceNow bought for $7.75 billion.

The Armis deal closed on April 20, just two days before the earnings release. To finance it, ServiceNow had taken out a $4 billion unsecured loan on April 17, with JPMorgan as the lead arranger, maturing in October 2026. The acquisition is meant to deepen ServiceNow’s foothold in enterprise security infrastructure by adding cyber-asset intelligence to its platform. Strategically, analysts broadly agree it makes sense. The near-term pain, however, is unmistakable: management now expects subscription gross margins of 81.5 percent for the full year, well below the 82.1 percent Wall Street had penciled in. The operating margin will take a 75-basis-point hit for the year, with a 125-basis-point drag expected in the second quarter alone.

The stock plunged 17.7 percent on the day of the report and has only partially recovered. By April 26, shares were trading in a range of $81.24 to $90.73, with volume of roughly 39 million shares — well above the daily average. The stock now sits below its 50-day moving average of $105.52 and far below its 200-day average, a technical picture that suggests the selling pressure isn’t over.

Analyst Targets Get Cut Across the Board

The revision cycle has been brutal. Piper Sandler slashed its price target from $200 to $140, despite maintaining a positive view on the company’s AI trajectory. Jefferies cut even deeper, dropping from $175 to $135. Goldman Sachs lowered its target from $188 to $163 while keeping a Buy rating. BMO Capital trimmed from $120 to $115, though it held its Outperform rating. Needham, Stifel, and Wolfe Research set new targets between $115 and $125, while BTIG and Mizuho stayed more optimistic at $150 and $140, respectively.

The wide dispersion in targets — from $115 to $163 — reflects a fundamental disagreement about how to value ServiceNow’s transition to so-called agentic AI architectures. The company’s AI product, Now Assist, is on track to reach $1.5 billion in annual contract value, up from a prior target of $1 billion. CEO Bill McDermott has been leaning hard into that narrative, and the full-year subscription revenue guidance was raised to a range of $15.735 billion to $15.775 billion, representing growth of 22 to 22.5 percent.

But the market is asking a tougher question: How much of that growth is organic, and how much is simply Armis being folded into the numbers? The current remaining performance obligations — a key forward-looking metric — rose 22.5 percent to $12.64 billion. Until the second-quarter results separate organic from acquired growth, skepticism will linger.

Short Sellers Pile In, But So Do Bargain Hunters

The bearish camp is growing louder. Short interest jumped roughly 30 percent in the days following the earnings release, a sign that a significant slice of the market doubts the organic growth story can recover quickly. On the other side, Advisors Capital Management boosted its position by more than 400 percent, buying over 42,000 additional shares.

The buyback program adds another layer of complexity. ServiceNow repurchased roughly 20 million shares in the first quarter — more than double the total for all of the prior year. That included 18.5 million shares under an accelerated repurchase program worth $2 billion, plus another 1.6 million shares bought on the open market. After those transactions, the company still has $4.2 billion in remaining buyback authorization, on top of the $5 billion the board approved in January 2026.

So the company is simultaneously borrowing billions, spending billions on buybacks, and absorbing margin compression from a major acquisition. It’s a strategy that only works if the underlying business accelerates — and if the market eventually believes it will.

The Next Catalyst: Analyst Day on May 4

ServiceNow is scheduled to hold an analyst event on May 4, where management is expected to provide more detail on the long-term integration of Armis and the monetization path for its AI products. For a stock that has been cut nearly in half from its highs, that day could determine whether the recent selloff was a buying opportunity or the beginning of a longer reset.