ServiceNow’s AI Partnership with Google Can’t Shield Stock From Armis Hangover

The numbers told a story of strength. The market told a different one entirely.

ServiceNow posted first-quarter subscription revenue of roughly $3.67 billion, up 22 percent year-over-year and ahead of internal forecasts. Total revenue hit nearly $3.8 billion, edging past Wall Street expectations. Adjusted earnings per share of 97 cents also beat analyst estimates. Yet the stock suffered its worst single-day rout on record, plunging about 18 percent and pushing its year-to-date decline past 45 percent.

The disconnect stems from two forces weighing on the software giant’s near-term outlook: a costly acquisition and geopolitical friction in the Middle East.

The Armis Drag

ServiceNow’s $7.75 billion takeover of security firm Armis is squeezing profitability. The integration is expected to shave 75 basis points off the operating margin for the full year, with the second quarter bearing the brunt at a projected 125-basis-point hit. The company’s gross margin forecast of 81.5 percent fell short of the 82.1 percent analysts had penciled in.

To cushion the blow, the board authorized a $5 billion share buyback program. But the move did little to stem the selling pressure.

Middle East Delays

CEO Bill McDermott acknowledged that the regional conflict in the Middle East had delayed several large on-premise contracts. Those deals, tied to sovereign cloud solutions, are booked as one-time revenue rather than spread across subscription periods. The disruption cost roughly 75 basis points of subscription revenue growth. Some of the delayed agreements have already closed in the current quarter, McDermott noted.

Google Cloud Deepens AI Ties

Amid the margin concerns, ServiceNow is pressing ahead with a strategic expansion of its partnership with Google Cloud. The two companies are integrating Google’s Gemini platform with ServiceNow’s AI environment to create autonomous agents capable of detecting and resolving operational issues without human intervention.

Should investors sell immediately? Or is it worth buying ServiceNow?

The technology leverages open protocols and Google’s BigQuery database, with ServiceNow providing the orchestration layer. Initial use cases target the telecommunications sector, where AI agents will monitor 5G networks and automatically trigger repair processes when performance degrades.

ServiceNow’s own AI suite, Now Assist, is accelerating faster than anticipated, now on track to generate $1.5 billion in incremental revenue.

Analyst Caution

The market’s skepticism is reflected in a wave of target-price cuts. Argus lowered its target to $134 from $180, though it maintained a buy rating. Mizuho trimmed to $140, citing integration costs but highlighting the long-term potential of the Google partnership. Goldman Sachs reduced its fair value estimate to $163 from $188. Jefferies and Piper Sandler followed suit.

Still, the analyst community remains broadly bullish. Of 46 analysts covering the stock, 39 rate it a buy, pointing to ServiceNow’s entrenched position in enterprise AI.

Looking Ahead

Management raised its full-year subscription revenue guidance to roughly $15.7 billion, signaling confidence in the underlying business. The next major catalyst arrives on May 4, when ServiceNow hosts its analyst day. Investors will be looking for a clear roadmap on how the company plans to monetize its AI investments while navigating the margin headwinds from the Armis integration.

The selloff also dragged down peers Salesforce and Oracle, underscoring the market’s jitters about the cost of AI-driven transformation across the software sector.