ServiceNow’s Hard Reset: Job Cuts, an IBM Pact, and a Stock in Freefall Despite 22% Growth

ServiceNow cuts jobs, partners with IBM on AI, and reports 22% subscription growth, yet stock drops 17% on earnings as market fears AI disruption.

ServiceNow is asking investors to look beyond the noise — and there is plenty of it. The software giant has announced its first-ever round of layoffs, struck a major artificial-intelligence alliance with IBM, and delivered a quarter with 22% subscription growth, yet its stock has shed nearly half its value over the past 52 weeks. The disconnect between operational performance and market sentiment has rarely been starker.

A Pivot Forced by the AI Wave

The job cuts affect several hundred employees, a move CEO Bill McDermott had ruled out as recently as 2023. The company insists the reductions are part of a deliberate restructuring: it is shedding headcount in some areas while actively hiring for AI-related roles. McDermott had previously signalled that natural attrition would keep the workforce stable, but the accelerating shift to AI-native solutions is now forcing more aggressive action. ServiceNow is far from alone — more than 117,000 workers across 178 technology companies have been laid off in 2026.

At the same time, ServiceNow is doubling down on a partnership with IBM. The two companies plan to combine IBM’s data capabilities with ServiceNow’s AI platform to build autonomous IT systems for large enterprises. The first joint solutions are expected to launch in the second half of 2026. The goal is to win big automation contracts and modernise legacy infrastructure — a bet that could reshape ServiceNow’s growth trajectory if it pays off.

Stellar Numbers, Brutal Price Action

First-quarter 2026 subscription revenue hit $3.67 billion, up 22% year over year. Remaining performance obligations for the next twelve months rose 22.5% to $12.64 billion — a clear signal that demand is not fading. Yet the stock cratered 17% on the day of the earnings release, the largest single-day drop in the company’s history. Over the entire first quarter, the shares lost more than 30%.

The market is worried that ServiceNow’s traditional per-user subscription model is being disrupted by AI-native competitors that offer different pricing and value propositions. While the company’s gross margin remains robust at 76.6%, investors are recalibrating expectations. On a weekly basis, the stock ended down 4.58% at €84.50, clawing back just 1.34% on Friday.

Analyst Doublethink

Wall Street analysts are caught between the strong fundamentals and the punishing chart. Benchmark’s Yi Fu Lee raised his price target to $130 from $125, praising the “clean business model” and holding on to a buy rating. Of the 50 analysts covering ServiceNow, 90% still recommend buying the stock, and 8% say hold. The consensus price target stands at $135 — though that average has fallen more than 23% over the past three months as the market repriced the shares lower.

Institutional investors have also grown cautious. The number of hedge funds holding ServiceNow dropped to 108 in the first quarter from 118, suggesting that some money managers are bracing for structural headwinds in traditional software subscriptions.

Technical Pressure and Brief Relief

The stock’s technical picture is fragile. The relative strength index sits at 43.4, edging toward oversold territory. The annualised 30-day volatility is roughly 79%, underscoring the high level of nervousness. A brief rally on 15 June, when the stock jumped 4.6% on news of a potential peace deal involving the Strait of Hormuz, quickly fizzled out as falling bond yields lifted growth stocks but failed to sustain momentum.

A Long-Range Bet — With Near-Term Tests

ServiceNow laid out a long-term vision at its investor day: annual revenue of $30 billion to $32 billion by 2030, representing a compound annual growth rate of 19.4%. For the current year, management has guided for at least 22% subscription growth, or as much as $15.77 billion in subscription revenue. If the company can maintain that pace, the valuation debate loses much of its sting.

The Hackett Group joined ServiceNow’s partner programme on 17 June, adding its AI evaluation tool to the ecosystem. And on 21 July, after the market close, ServiceNow will report second-quarter earnings. The consensus calls for earnings per share of $0.87 on revenue of $3.96 billion. Whether those numbers can begin to close the yawning gap between a 22%-growing business and a stock that has lost half its value will determine the next leg of the story.