ServiceNow’s Bullish AI Forecast Can’t Mask the $7.75 Billion Armis Hangover

ServiceNow raises 2026 AI revenue forecast to $1.5B but stock drops 40% YTD as margin pressure from Armis deal and geopolitical risks weigh on investor sentiment.

ServiceNow’s management is sprinting toward an ambitious AI revenue target, but the market is fixated on the cost of getting there. The software giant has jacked up its 2026 forecast for its Now Assist AI suite to at least $1.5 billion — a 50% increase from its prior estimate — yet the stock has shed roughly 40% of its value since January. That disconnect will be the central tension when the company hosts its Financial Analyst Day in Las Vegas on May 4.

The numbers from the first quarter tell a story of operational strength colliding with market skepticism. Revenue hit $3.77 billion, while adjusted earnings per share came in at $0.97 — both ahead of analyst expectations. The backlog of remaining performance obligations stood at $27.7 billion, representing currency-adjusted growth of about 23% year over year. Half of all new business is now structured around consumption-based models like token usage rather than traditional user licenses, a shift that CEO Bill McDermott is betting will underpin long-term growth.

But the balance sheet carries a heavy weight. The $7.75 billion acquisition of cybersecurity specialist Armis has depressed margins, with integration costs dragging the GAAP gross margin to 75% in the first quarter. CFO Gina Mastantuono has signaled that margin normalization won’t arrive until 2027. That timeline has rattled investors already on edge about the pace of AI monetization across the tech sector.

Geopolitical headwinds added another layer of uncertainty. Customers in the Middle East delayed contract signings, shaving roughly 75 basis points off subscription growth. Mastantuono is now taking a more cautious stance for the full year, warning of potential further delays on large deals.

The market’s response to the Q1 beat was brutal: shares slid roughly 13% in after-hours trading. Wall Street analysts have been slashing price targets even as most maintain buy ratings. DA Davidson cut its target to $190, while Piper Sandler lowered its to $140. The stock now trades well below all key moving averages, and at a price-to-earnings ratio of roughly 58, it remains expensive by historical standards.

Insider activity has done little to calm nerves. Chief People Officer Jacqueline Canney sold 8,927 shares in late April at an average price of $89.60 — dangerously close to the stock’s multiyear low. The transaction was worth approximately $800,000.

McDermott is countering the gloom with an aggressive capital allocation strategy. ServiceNow bought back roughly 20 million shares in the first quarter alone — more than double the total for all of 2025 — and still has $4.2 billion remaining in its buyback authorization. The company is also leaning into its AI narrative: Now Assist is already deployed at nine of the ten largest U.S. corporations, and the CEO is betting that consumption-based pricing will accelerate revenue growth as customers scale their usage.

The May 4 analyst day will be the stage for the long-term plan. Management is expected to detail the timeline for AI revenue acceleration and clarify how the shift to token-based pricing will reshape the financial model. For now, the bulls point to a $27.7 billion backlog and a CEO who just raised his AI target by 50%. The bears see a stock down 40% with margins under pressure and a CFO warning of more caution ahead. Both sides will be watching Las Vegas closely.