ServiceNow’s AI Revenue Target Soars to $1.5 Billion as Its Stock Tumbles 41%

ServiceNow raises Now Assist revenue target to $1.5B, subscription growth beats Microsoft, but Armis acquisition and geopolitical headwinds pressure margins and valuation.

The disconnect between ServiceNow’s operational momentum and its market valuation has rarely been starker. While the software giant’s shares have shed roughly 41% of their value since the start of the year, the company is simultaneously ratcheting up its artificial intelligence ambitions at a pace that would make most peers envious.

At the heart of this paradox lies a dramatic upward revision to the revenue forecast for “Now Assist,” ServiceNow’s AI suite. Management now expects annual contract value to hit $1.5 billion, up sharply from the $1 billion target set just months ago. The upgrade reflects what the Information Services Group (ISG) describes as a sweeping transformation across corporate America, where businesses are consolidating fragmented software tools and positioning ServiceNow as the central orchestration layer for AI-driven automation.

Subscription growth outpaces Microsoft’s cloud unit

The underlying numbers tell a compelling story. In the first quarter, ServiceNow grew its currency-adjusted subscription revenue by 19% to nearly $3.7 billion. That clip is roughly seven percentage points faster than Microsoft’s cloud division — a comparison that underscores the company’s relative strength in the enterprise software arena.

Yet the market remains unimpressed. ServiceNow’s shares trade at a lower earnings multiple than its Redmond-based rival, a discount that analysts attribute partly to geopolitical headwinds. The company has pointed to delayed contract signings in the Middle East, blaming the ongoing regional conflict for the slowdown.

A closer look at the order book, however, suggests the pessimism may be overdone. Remaining performance obligations (cRPO) climbed 21% on a currency-adjusted basis to $12.64 billion, exceeding the company’s own guidance. On a broader measure, total backlog now stands at $27.7 billion, representing year-over-year growth of roughly 23%.

The Armis acquisition weighs on margins

ServiceNow’s expansion has come at a cost. The $8 billion acquisition of cybersecurity specialist Armis — whose software already runs at nine of the ten largest U.S. corporations — has given the company a complete security ecosystem. But the price tag is squeezing profitability.

CFO Gina Mastantuono has signaled that margin normalization will not arrive until 2027. GAAP gross margins took a visible hit in the first quarter as integration expenses and amortization charges piled up. The pressure has fueled skepticism on Wall Street, where a string of analysts have trimmed their price targets even as most maintain buy ratings.

Insider sale and the Las Vegas catalyst

Market watchers also took note of insider activity last week. Jacqueline Canney, the company’s chief people and AI officer, sold nearly 9,000 shares in a transaction valued at roughly $800,000. She retains a substantial stake of more than 29,000 shares following the sale.

The next major inflection point arrives on May 4, when ServiceNow hosts its Financial Analyst Day in Las Vegas. Investors are expecting detailed plans on how the company will monetize its AI services, along with concrete free cash flow targets through 2027. The event will also shed light on the shift toward consumption-based pricing models — tokens rather than traditional user licenses now account for half of new business — and how that evolution supports long-term growth.

For a company whose stock has been cut nearly in half while its AI revenue target has jumped 50%, the stakes in Las Vegas could hardly be higher.