ServiceNow’s Margins Are Squeezed by Armis, but the Fed Is the Real Axe Hanging Over the Stock

ServiceNow posts 21.5% revenue growth and $2B buyback, but stock falls 15% as Armis acquisition pressures margins and Federal Reserve hawkishness hits software stocks.

ServiceNow posted a 21.5% jump in quarterly revenue, raised its full-year outlook, and switched on a record $2 billion share buyback — yet the stock dropped roughly 15% after the results. The disconnect between operational momentum and market sentiment has rarely been so stark, and two powerful forces are responsible: a massive, early closing of the $7.75 billion Armis acquisition and a hawkish turn from the Federal Reserve that sent software stocks reeling.

The cybersecurity deal, which closed in mid-April ahead of schedule, is compressing near-term profitability. Management expects the integration of Armis to shave 75 basis points off the operating margin this year and slice 200 basis points from free cash flow. That pressure comes even as the core business hums along: subscription revenue grew 22% in the first quarter, renewal rates held at 98%, and remaining performance obligations swelled 25% to $27.7 billion.

ServiceNow’s AI product, Now Assist, has already racked up $600 million in contract value, and the company is targeting $1 billion by 2026. At the same time, it is restructuring its pricing model — half of new deals are now usage-based rather than fixed-user licenses, a shift analysts believe could accelerate revenue growth further.

Against that backdrop, the equity market’s reaction looks almost surreal. The stock recently settled at €84.50, down roughly 6% on the week, and has lost nearly half its value from highs earlier this year. The relative strength index sits at 43.4, deep in bearish territory. Annualized volatility is close to 79%.

The Warsh Effect

The macro landscape turned decisively against high-growth software names on Wednesday, when the Federal Reserve’s first policy meeting under new chair Kevin Warsh set off a wave of selling. The central bank held rates steady, but the dot plot revealed a median year-end rate estimate of 3.8% for 2026, and several committee members now see at least one rate hike this year. Warsh also signaled fewer press conferences going forward, a move interpreted as a deliberate attempt to reduce market reliance on forward guidance.

For a company like ServiceNow, whose valuation depends heavily on distant future cash flows, the rise in discount rates is particularly painful. The day of the Fed decision, the stock fell nearly 6% in a single session.

Now all eyes turn to Friday, June 25, when the Fed’s preferred inflation gauge — the core PCE price index — is released. Economists at Wells Fargo expect a month-over-month increase of 0.5%, which would push the annual rate above 4%. Such a reading would reinforce the central bank’s tightening bias and likely prolong the selling pressure on richly valued tech stocks.

Debt by the Deal, Not by the Dollar

A handful of one-off factors also weighed on first-quarter performance. ServiceNow flagged delayed contract closures in the Middle East due to ongoing regional conflict, as well as headwinds from the U.S. government shutdown. Those issues, combined with the Armis-related margin drag, overwhelmed what was otherwise a clean beat on earnings.

The company’s massive buyback — $2 billion in the first quarter, double the total for all of last year — did little to stem the decline. Management has publicly acknowledged the gap between the stock price and the business reality, stating that the share price does not reflect the company’s strong performance.

Analysts remain overwhelmingly bullish. The average price target is roughly $142 per share (or about €124), implying upside of more than 46%. Of 44 analysts covering the stock, 43 rate it a buy and only one recommends selling. Yet the market is focused on a different data set.

A Macro-Driven Stresstest

ServiceNow’s next earnings report, due in July, will be the first to include a full quarter of Armis revenue. But the more immediate catalyst is the PCE print. If support at €80 holds, the stock could find a floor and allow the fundamental story to reassert itself. A hotter-than-expected inflation reading, however, risks another leg down in what has become a macro-driven bear market for one of the software sector’s most resilient growth stories.

The company’s leadership has tried to steer attention back to the operational strength — the $2 billion buyback, the AI pipeline, the pricing pivot — but in the current environment, the Fed has the louder megaphone.