ServiceNow Shares Plunge 15% on Q3 Earnings Miss Despite AI Contract Surge

Key points

• ServiceNow stock dropped 15% in post-market trading after Q3 results, despite revenue growing 21% year-over-year to $4.1 billion.
• Adjusted EPS came in at $0.27, missing the consensus estimate of $0.35, marking the first adjusted EPS miss in six quarters.
• The company raised its 2026 AI annual contract value (ACV) target to $1.7 billion, up from $1 billion at the start of the year.
• Subscription revenue reached $4.0 billion, slightly exceeding expectations, while current remaining performance obligations (cRPO) grew 20.5% year-over-year to $13.65 billion.
• Management raised full-year free cash flow margin guidance to 36%, citing efficiency improvements and strong customer adoption of AI tools.

Background

ServiceNow has been a standout performer in enterprise software, with shares up 11.12% over the past month prior to the Q3 report. The company’s AI strategy, particularly its 'Super Intelligence Control Tower,' has been a key focus, with AI net new ACV growing over 40% quarter-over-quarter in Q2. The stock had been trading at a premium valuation, around 99x earnings, setting high expectations for continued growth.

How outlets are covering it

Seeking Alpha emphasized the momentum of ServiceNow’s Control Tower strategy and its 20% revenue growth streak, noting that the stock drop was driven by an EPS miss despite strong top-line performance. Yahoo Finance highlighted the sharp 15% plunge, focusing on the EPS miss and the company’s raised guidance, while also noting the broader earnings season context. 24/7 Wall St. provided a detailed breakdown of the mixed results, noting that while AI ACV and subscription revenue beat expectations, the EPS miss and premium valuation triggered significant selling pressure. All sources agreed that the AI business is accelerating, but investors were focused on whether future growth could justify the high valuation.

Why it matters

ServiceNow’s results signal a potential inflection point for enterprise software companies as AI adoption accelerates. The stock’s sharp decline despite strong revenue growth and raised AI targets highlights investor sensitivity to profit margins and valuation. The company’s ability to monetize AI through agentic services and control tower strategies will be critical in determining whether it can sustain its premium valuation in a competitive market.

What to watch

Investors will watch ServiceNow’s Q4 performance, particularly cRPO growth, which is expected to slow to 18.5% from 20.5% in Q3. The company’s ability to maintain strong free cash flow margins and continue expanding AI contract value will be key. Analysts will also monitor how the company integrates its acquisitions and manages gross margin pressures from AI consumption and hyperscaler costs.