NEW YORK, July 14, 2026, 10:07 EDT
ServiceNow Inc. NYSE:NOW fell 5.8% to $104.85 in early trading on Tuesday, erasing roughly $6.7 billion of market value, after International Business Machines Corp. NYSE:IBM warned that spending on AI servers and storage was squeezing software budgets. The move came even as the S&P 500 and Nasdaq opened higher. Investors are treating a hardware-spending shift as an immediate test of ServiceNow’s premium valuation.
That matters because ServiceNow reports second-quarter results after the close on July 22. It entered the period with $12.64 billion of cRPO — contracted revenue due to be recognized within 12 months — equal to 3.3 times the midpoint of its $3.815 billion to $3.820 billion subscription-revenue guide. The backlog buys visibility, not immunity.
ServiceNow’s decline was steeper than Salesforce Inc. NYSE:CRM but milder than Workday Inc. NASDAQ:WDAY. Yet ServiceNow still carried the highest trailing price-to-earnings ratio in the group, at about 61.7 times. That premium raises the bar.
| Company | Early price | Day move | Trailing P/E |
|---|---|---|---|
| ServiceNow NYSE:NOW | $104.85 | -5.8% | 61.7x |
| IBM NYSE:IBM | $220.94 | -23.9% | 19.5x |
| Salesforce NYSE:CRM | $166.07 | -3.0% | 23.5x |
| Workday NASDAQ:WDAY | $135.41 | -6.5% | 42.3x |
Latest available early-trading data.
UBS Group AG NYSE:UBS raised its ServiceNow price target to $115 from $100 on Tuesday but kept a Neutral rating, saying the second-quarter setup pointed to stable demand and limited near-term AI momentum. At $104.85, the new target offers about 9.7% upside. The rating mattered more than the arithmetic.
IBM’s preliminary second-quarter revenue of $17.2 billion missed the $17.86 billion LSEG consensus, while adjusted earnings of $2.93 a share trailed the $3.02 estimate. Chief Executive Arvind Krishna said customers shifted quarter-end capital spending toward servers, storage and memory, leaving numerous large deals unclosed; he said IBM had “faltered” in adapting. This is a direct read-through on enterprise wallet share, not proof that ServiceNow missed. Reuters
Chris Beauchamp, chief market analyst at IG Group Holdings plc LON:IGG, called it “an ugly moment for IBM and software stocks” and said the duration of the spending shift was the central question. For ServiceNow, the cleanest check will be cRPO, because contract delays can appear there before they hit recognized revenue. Timing matters here. Reuters
ServiceNow’s published guidance looks stronger at the headline than it does after removing the Armis contribution. Second-quarter subscription growth of 21% to 21.5% in constant currency, which removes exchange-rate swings, and cRPO growth of 19.5% each include about 1.25 percentage points from Armis. The adjusted hurdle is lower, but more revealing.
| Metric | ServiceNow guidance | Approximate ex-Armis read-through |
|---|---|---|
| Q2 subscription revenue | $3.815 billion-$3.820 billion; 21%-21.5% growth | 19.75%-20.25% growth |
| Q2 cRPO growth | 19.5% | 18.25% |
| 2026 subscription revenue | $15.735 billion-$15.775 billion; 20.5%-21% growth | 19.25%-19.75% growth |
Those ex-Armis figures are calculations from ServiceNow’s disclosed 1.25-point acquisition contribution, not company-issued guidance. They make roughly 20% underlying subscription growth and 18.25% cRPO growth the real test. A headline beat helped by acquired revenue would carry less weight if contract growth slows.
ServiceNow has evidence on the other side. First-quarter subscription revenue rose 22% to $3.671 billion, or 19% in constant currency, while cRPO increased 22.5%, or 21% in constant currency. The company signed 16 transactions worth more than $5 million in net new annual contract value, up nearly 80%, and Now Assist customers spending more than $1 million grew over 130%. Chief Executive Bill McDermott said AI growth was “far exceeding even our own expectations.” The base case remains intact. SEC
Profitability also gives management room. ServiceNow guided to a 31.5% non-GAAP operating margin and a 35% free-cash-flow margin for 2026, though Armis is expected to reduce those measures by about 0.75 and 2 percentage points, respectively. Margins are a cushion, not a catalyst.
But IBM’s warning could prove specific to its product mix and quarter-end execution rather than a broad software freeze; ServiceNow sells recurring cloud workflows and security, and its $12.64 billion cRPO can soften short-term volatility. The downside is that budget reprioritization lasts, large deals slip, or AI agents curb user-seat growth while ServiceNow still trades near 62 times trailing earnings. Either outcome could overwhelm a modest target increase.
On July 22, investors will focus less on reported subscription revenue than on whether cRPO growth clears 19.5%, whether ex-Armis growth holds near 20%, and what management says about late-June deal timing. Revenue alone may not settle it. The market wants proof.
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