ServiceNow shares fall 19% as slower contract growth overshadows higher AI target

ServiceNow’s higher AI sales ambitions did not cushion the reaction to its latest earnings. Shares fell 18% after hours following its October 28 results and were down 19% in Thursday morning trading. The company raised its 2026 AI annual contract value target to $1.7 billion while forecasting slower growth in near-term contracted revenue.

The outlook puts the AI target in perspective

ServiceNow forecast fourth-quarter revenue of $4.25 billion to $4.26 billion, below the $4.36 billion analysts expected, according to 24/7 Wall St. That forecast concerns the company’s overall sales, a different measure from the annual value of its AI contracts. The raised AI target therefore sits alongside a weaker near-term revenue outlook, rather than replacing it.

The company also projected 18.5% growth in current remaining performance obligations, or cRPO. That is contracted revenue ServiceNow expects to recognize over the next 12 months—not all the revenue in its multiyear contracts. The measure gives investors a view of sales already under contract but not yet recorded as revenue.

In the third quarter, cRPO grew 20.5% to $13.65 billion. Revenue reached $4.106 billion, up 20.5% from a year earlier, while subscription revenue rose 21% to $3.988 billion. Adjusted earnings were $1.00 per share. ServiceNow attributed the earnings shortfall against expectations to acquisition-related costs; the contract-growth forecast presented a separate concern about the coming quarter.

A higher AI contract target

2026 AI annual contract value target

$1.5 billion→$1.7 billion

billion dollars

ServiceNow increased its target from the previous $1.5 billion. This is a contract-value goal, not quarterly revenue already earned.

AI deployment work complicates subscription growth

Chief Financial Officer Gina Mastantuono offered two explanations for the near-term pressure. Some customer renewals closed early in the third quarter, moving that activity out of the fourth quarter. That timing shift is different from a customer deciding not to renew: management’s explanation concerns when contracts closed, rather than the disappearance of those contracts.

The second explanation goes directly to the work required to put large AI deals into use. ServiceNow is temporarily providing extra deployment assistance on some of those deals. That assistance is recorded as professional-services revenue instead of subscription revenue, Mastantuono said. She put the resulting drag on fourth-quarter subscription growth at about half a percentage point.

The distinction is important to management’s account of the slowdown. The deployment work is generating revenue, but it is not currently appearing in the subscription category. ServiceNow expects that work to translate into subscription growth in 2027. That remains an expectation about how the deployments mature, not a result demonstrated by this quarter’s subscription figures.

Usage is rising; broader acceleration is still ahead

ServiceNow’s case for AI demand extends beyond its higher contract target. Mastantuono said year-to-date consumption of its agentic AI products in production—use in live operations—was more than 13 times the year-earlier level. Stocktwits reported that usage figure alongside management’s acknowledgment that broader revenue acceleration from AI products remains ahead as deployments mature in 2027.

Those are different stages of the business: customers signing contracts, using AI in production, and generating recognized subscription revenue. ServiceNow is pointing to strength in the first two while explaining pressure on the third. Its full-year outlook also contains two distinct measures of the broader business, covering subscription sales and cash generation:

• Full-year subscription revenue is forecast at $15.78 billion to $15.79 billion, representing about 22.5% growth.
• The full-year free cash flow margin outlook rose by one percentage point to 36%, adding a stronger cash-generation target to the earnings announcement.