ServiceNow Stock Plummets Amid Software Sector Slump After Fourth-Quarter Outlook Misses

The broader software sector declined on Thursday, led by a sharp drop in ServiceNow stock, which plummeted nearly 27% in its worst day ever after the company issued a fourth-quarter outlook that fell just short of estimates, rekindling fears that artificial intelligence competition could pressure its software business. Fortinet shares also tumbled 20% following its third-quarter results, while peers such as CrowdStrike, Okta, and Palo Alto Networks experienced declines before trimming their losses during the session.

For the third quarter, ServiceNow reported that revenue rose 20.5% to $4.1 billion, while adjusted earnings per share rose 4% and missed FactSet consensus by $0.02. Subscription revenues jumped 21% to $3.99 billion, and AI net new annualized contract value surged 65% year over year. Despite the top-line growth and strong adoption metrics, the market reaction was heavily influenced by the company's projected current remaining performance obligations.

ServiceNow's cRPO, which measures projected revenue in the coming months, is expected to rise 18.5%, coming in below the 19.4% expected by Wall Street. This marked a deceleration from the current quarter's 20.0%. Management explained that the figures involved multiple nuances, including increases in forward-deployed engineering services classified under services revenue and early renewals that pulled cRPO forward into the current quarter. Management also noted that investments in deployment expertise shifted approximately 25 basis points of subscription revenue growth over to professional services as it accelerated AI implementations for select large customers.

ServiceNow CFO Gina Mastantuono pushed back against the negative investor reaction during an interview on Thursday. "CRPO, while it's a good metric that talks about what next year's revenue will look like, it's not perfect. It's a nuanced accounting metric that doesn't necessarily capture all of the momentum in the business," she stated.

Despite the heavy selloff, Wall Street analysts remained mostly optimistic about the underlying strength of the enterprise software provider. Oppenheimer analyst Brian Schwartz argued that the company's adoption numbers show it is not being disrupted by artificial intelligence, even if growth is not speeding up immediately. "In our view, ServiceNow's AI momentum counters a disruption thesis, although it doesn't establish a clear path to organic reacceleration," Schwartz wrote, advising clients to buy the post-earnings dip with a Buy rating and a $165 price target.

Morningstar analysts reacted to the guidance nuances by lowering their fair value estimate for ServiceNow to $100 per share from $165, adjusting their longer-term assumptions to reflect more conservative growth projections extending into the 2030s and 2040s. Meanwhile, ServiceNow raised its full-year 2026 subscription revenue guidance to a range of $15.78 billion to $15.79 billion and increased its year-end AI ACV target to $1.7 billion, up from $1.5 billion previously, highlighting confidence in ongoing monetization.

The software sector sell-off also encompassed Fortinet, which saw its shares drop 20% after lowering its full-year service revenue forecast to between $5.15 billion and $5.17 billion, down from a previous guidance range of $5.18 billion to $5.22 billion. The downward revision missed Wall Street estimates of $5.2 billion and prompted several financial institutions, including Bank of America, Mizuho Securities, and Piper Sandler, to lower their price targets on Fortinet stock.