ServiceNow Shares Plunge 18% After Mixed Q3 Earnings Override Raised AI Outlook

ServiceNow (NOW) shares fell 18% in after-hours trading Wednesday after the company reported mixed third-quarter results that failed to reassure investors about the momentum of its AI business. Earnings missed estimates and signs of slowing contract growth overshadowed growing AI deal pipeline. Third-quarter revenue rose 20.5% year over year to $4.106 billion, slightly above the FactSet consensus of $4.095 billion. Adjusted earnings per share came in at $1.00, below the $1.02 analysts expected. President and CFO Gina Mastantuono attributed the shortfall to lower interest income and higher debt costs following the company's earlier acquisition of cybersecurity firm Armis. Current remaining performance obligations (cRPO) rose 20.5% to $13.65 billion, topping the $13.56 billion consensus, while total RPO grew 22% to $29.7 billion. Deals with new annual contract value above $5 million increased 135% year over year. ServiceNow raised its 2026 AI annual contract value target to $1.7 billion from $1.5 billion set in May. However, the company guided fourth-quarter cRPO growth down to 18.5%, 2 percentage points below the third quarter, fueling investor concern. Fourth-quarter subscription revenue is forecast at $4.245 billion to $4.255 billion, up 22.5% to 23% year over year. ServiceNow also lifted its full-year free cash flow margin outlook to 36% from 35% and announced an expanded OpenAI partnership and a new Control Tower Alliance.