ServiceNow's AI Bet Faces a Reckoning as Buybacks and Analyst Cuts Paint a Mixed Picture

ServiceNow raises AI revenue target to $1.5B by 2026 and doubles buybacks, but Armis acquisition costs and analyst caution drive shares down 3.1% to $100.

A curious disconnect has taken hold at ServiceNow. On one side, the company is aggressively raising its AI revenue targets and buying back stock at a record pace. On the other, at least one analyst is trimming price expectations, and the market is punishing the shares for a profits squeeze tied to a $7.75 billion acquisition.

The tension played out in plain view on the day of ServiceNow's annual meeting. Shares slipped roughly 3.1% to $100.14, bringing the year-to-date decline to more than 30%, even as management reiterated a $30 billion subscription revenue goal for 2030.

A New AI Barometer

The centerpiece of the bullish case is Now Assist, the company's suite of AI-powered workflow tools. ServiceNow now expects the suite to generate $1.5 billion in annual contract value by 2026 — a 50% jump from its prior forecast. The upgrade comes after the first quarter showed a 130% increase in the number of customers spending more than $1 million on AI-related products. The newly launched "Otto" AI agent system already landed six large deals in that million-dollar-plus category.

Chief Operating Officer Amit Zavery underscored the long-term vision at the J.P. Morgan Technology Conference just two days before the shareholder gathering. The $30 billion subscription target for 2030 is ambitious, but the company's remaining performance obligations — a key gauge of future revenue — climbed 25% to $27.7 billion, outpacing the 22.1% revenue growth that pushed first-quarter sales to $3.77 billion.

Analyst Caution — and a Buyback Blitz

That operational strength did not stop Citic Securities from cutting its price target on ServiceNow from $168 to $140. The bank maintained a Buy rating, implying roughly 40% upside from current levels, but the revision reflects a broader reassessment of richly valued software stocks. Rising U.S. bond yields have hammered growth names, and the AI euphoria that once lifted everything in the sector has become far more selective.

ServiceNow's management responded with a show of force in the share repurchase program. In the first quarter alone, the company bought back 20.1 million shares — more than double the total for all of last year — leaving $4.2 billion still authorized for further buybacks. The move is designed to restore investor confidence after a brutal April selloff triggered by two factors: delayed contract closings in the Middle East due to regional conflicts, and the cost of integrating Armis, a cybersecurity firm acquired for $7.75 billion.

Margin Pain Now for a Bigger Addressable Market

Armis is a strategic bet that expands ServiceNow's reach into security operations, but it comes at a short-term cost. The acquisition will push adjusted gross margins to around 81.5% for the current year. The company is betting the drag is temporary, with a return to normal margins expected in 2027. Free cash flow will also remain under pressure through the end of the year as the integration unfolds.

Meanwhile, ServiceNow is positioning itself as the control layer for what it calls "agentic AI." Using its new "Action Fabric" technology and the Model Context Protocol developed in partnership with Anthropic, the platform aims to become the hub where external AI agents execute and are governed within enterprise processes. The company's "Autonomous Security & Risk" solution, built from the Armis acquisition, is an early product of that strategy.

The Market's Bottom Line

Technically, the stock has broken its short-term downtrend, and the $102 level has emerged as a key support. A sustained hold above that could signal a bottoming process. But the core challenge remains: ServiceNow's long-term AI narrative is as compelling as ever, yet near-term valuation and margin pressures keep the shares under a cloud. For the stock to regain its footing, investors will need to see continued strong RPO growth and clear evidence that AI products like Now Assist are generating incremental, paying demand — not just replacing existing contracts.

The annual meeting on May 21, conducted via webcast, offered little immediate catalyst. The real test will come in the quarters ahead as the market watches whether ServiceNow can convert its AI ambition into the kind of earnings momentum that justifies its multiple.