Key Notes
- ServiceNow reported $4.106 billion in Q3 revenue and adjusted EPS of $1.00, missing the $1.02 analyst forecast while sales broadly matched expectations.
- NOW shares fell 27% in their worst session on record as investors questioned the timing of returns from AI investment and the outlook for enterprise software.
- The company raised its full-year subscription revenue outlook to $15.780 billion–$15.790 billion and its annual AI contract-value target to $1.7 billion.
ServiceNow (NYSE: NOW) shares plunged 27% on Thursday after its third-quarter earnings missed expectations, renewing concerns about how artificial intelligence will reshape enterprise software. The selloff came despite higher subscription revenue guidance and a larger target for the company’s AI business.
The decline marked NOW’s worst session on record, CNBC reported. It was a sharp reminder that investors want evidence of stronger financial returns from AI investment, even from software companies still delivering double-digit growth.
Adjusted Earnings Fall Short
In its October 28 results, ServiceNow reported Q3 revenue of $4.106 billion, up 20.5% year over year, including $3.988 billion in subscription revenue. Adjusted diluted earnings were $1.00 per share; GAAP diluted earnings were $0.27.
Analysts surveyed by LSEG had expected approximately $4.10 billion in revenue and adjusted EPS of $1.02, according to CNBC. Sales therefore broadly matched expectations, while the adjusted profit measure missed by two cents. GAAP earnings should not be compared directly with the adjusted consensus.
The distinction matters because software companies exclude items such as stock-based compensation and acquisition-related expenses from their adjusted results. An earnings beat or miss depends on comparing the same accounting measure, rather than treating the two EPS figures as interchangeable.
AI Spending Faces a Payoff Test
The market reaction centered on more than a narrow earnings miss. Investors are weighing whether AI will expand demand for enterprise platforms or allow customers to accomplish more work without buying additional conventional software subscriptions.
CNBC’s analyst interview highlighted concern that ServiceNow’s new forward-deployed engineering team, which works inside customer organizations on AI solutions, has yet to deliver an immediate financial payoff. That is an assessment of the timing of returns, rather than evidence that the company’s AI business has stopped growing.
For shareholders, the central question is whether the cost of building and deploying those solutions leads to larger contracts, durable renewals and better cash generation. Strong adoption figures can support that case, but usage growth alone does not establish how profitable the new business will become.
Higher Targets Offer a Counterpoint
ServiceNow raised its full-year subscription revenue forecast to $15.780 billion–$15.790 billion and its adjusted free-cash-flow margin target to 36%. For Q4, it expects subscription revenue of $4.245 billion–$4.255 billion.
The company also raised its annual AI contract-value target to $1.7 billion, compared with $1 billion at the start of the year. Annual contract value measures contracted business; it is not the same as revenue recognized during a quarter.
Current remaining performance obligations reached $13.65 billion, up 20.5% year over year. That measure covers contracted revenue expected to be recognized over the next 12 months. It provides a view of future activity, while remaining distinct from cash already collected or sales already booked in the income statement.
OpenAI Partnership Expands the Strategy
A separate October 28 announcement outlined an expanded relationship with OpenAI. A ServiceNow MCP plugin became available in the OpenAI marketplace, connecting ChatGPT with governed enterprise workflows through ServiceNow’s Action Fabric.
Other elements remain on the roadmap. Voice capabilities are expected in Q1 2027, while an integration involving Codex and ServiceNow’s AI Workflow Factory is planned for 2027. These are future product milestones, rather than capabilities that were all available during the reported quarter.
The partnership illustrates ServiceNow’s attempt to make its platform the execution and governance layer behind AI assistants. Its commercial value will depend on customers adopting those workflows and paying for them. An announcement made after September’s quarter-end cannot by itself demonstrate a contribution to Q3 results.
What NOW Investors Will Watch Next
The next test is whether fourth-quarter subscription performance and contract conversion support the higher outlook. Investors will also watch whether the company can translate AI-related demand into financial returns without a sustained increase in delivery costs.
The emphasis on cash generation extends beyond enterprise software. As we reported earlier, the contrasting reactions to Alphabet and Microsoft’s results underscored growing scrutiny of the financial payoff from AI spending.
ServiceNow’s figures show a business still expanding. Thursday’s selloff shows that growth alone has not resolved investors’ questions about its AI transition. The raised targets offer measurable benchmarks for future results, rather than a guarantee of how NOW shares will trade.
