Enterprise Software Stocks Face AI Disruption Fears Despite ServiceNow’s Strong Quarter

ServiceNow US81762P1021

A wave of selling pressure is sweeping through the enterprise software sector, with industry leader ServiceNow caught in the downdraft. The sell-off is fueled by mounting investor concerns that new artificial intelligence tools could automate core business workflows, potentially undermining the value proposition of traditional software providers. These fears intensified recently following an open-source update to Anthropic's productivity tool, "Claude Cowork."

The anxiety is not confined to any single market. In Europe, the Stoxx Europe Software and Computer Services index dropped more than 5% in a single session. Asian markets felt similar pressure, with Japanese software stocks seeing sharp declines; TIS shares plummeted nearly 16%. India's Nifty-IT index retreated by 5.8%.

The immediate catalyst for the accelerated selling appears to be Anthropic's announcement of new "Claude Cowork" features tailored for legal, financial, and product marketing functions—released under an open-source license. This move has directly stoked fears that AI is beginning to encroach on tasks traditionally managed and executed through enterprise software platforms.

Sector-specific funds reflect the broad downturn. Since the start of the year, the WisdomTree Cloud Computing Fund has shed approximately 20% of its value. ServiceNow's own equity performance has been severely impacted, with the stock down roughly 25% for 2026 and falling almost 7% in one day according to CNBC data, bringing its year-to-date decline to 28%.

ServiceNow's Operational Performance Tells a Different Story

In stark contrast to the market's reaction, ServiceNow's operational results for the final quarter of its 2025 fiscal year, released January 28, exceeded the company's own forecasts for both growth and profitability.

Key Q4 2025 Financial Metrics:
* Subscription Revenues: $3.466 billion, a 21% year-over-year increase
* Total Revenue: $3.568 billion, up 20.5%
* Adjusted EPS: $0.92, surpassing the analyst consensus estimate of $0.89
* Current Remaining Performance Obligation (cRPO): $12.85 billion, growing 25%
* Non-GAAP Operating Margin: 31%
* Free Cash Flow Margin: An impressive 57% for the quarter

The company's AI product, "Now Assist," showed significant traction. Its annual contract value (ACV) surged to over $600 million, more than doubling from the previous year. The quarter saw 244 deals closed with net new ACV exceeding $1 million each. Furthermore, ServiceNow ended the period with 603 customers contributing over $5 million in ACV.

Capital Return and Leadership Confidence

Alongside its robust financials, ServiceNow's board authorized an additional $5 billion for its share repurchase program. The company also plans an immediate accelerated buyback of $2 billion.

CEO Bill McDermott addressed the AI disruption concerns head-on, positioning ServiceNow's platform as the essential "semantic layer" that makes AI broadly usable and actionable within large organizations. CFO Gina Mastantuono characterized recent acquisitions, including Armis for $7.75 billion and Moveworks for nearly $3 billion, as accelerants to the company's organic growth strategy rather than a departure from it.

Looking ahead to the full 2026 fiscal year, management provided the following guidance:
* Subscription Revenues: $15.53 to $15.57 billion (representing 19.5% to 20% constant-currency growth)
* Non-GAAP Operating Margin: 32%
* Free Cash Flow Margin: 36%

Investors will get their next update when the company reports earnings, currently scheduled for April 22.

@ boerse-global.de | US81762P1021 ENTERPRISE