ServiceNow's stock falls as a new AI threat overshadows earnings beat

By Christine Ji

While ServiceNow's earnings beat proved that its AI momentum is picking up, the launch of OpenAI Presence reignites fears of enterprise-software disruption

ServiceNow's AI annual contract value has surpassed $1 billion.

Major stock indexes fell Thursday as investors digested Alphabet and Tesla earnings. ServiceNow shares were bucking the trend - at least for a while.

ServiceNow's (NOW) stock rose 2% in morning trading on the back of an earnings beat and renewed confidence in the company's artificial-intelligence strategy. The initial rally came despite a drop of more than 1% in the S&P 500 index SPX, and a 2.4% selloff in the tech-heavy Nasdaq Composite COMP.

However, ServiceNow shares ended the day down nearly 4% as a new OpenAI release added fresh fuel to the software bear thesis. Shares of ServiceNow are down 38% year to date.

OpenAI Presence, announced Wednesday, is a product that "helps enterprises deploy trusted AI agents that can answer questions, resolve issues, use company systems, take approved actions and escalate to people when needed," according to the company blog post.

With use cases including customer support, outbound sales, insurance claims, employee IT requests and more, "Presence is being marketed with much of the AI agent capabilities that SaaS vendors pitch, including packaging LLM reasoning + data access + governance/policy control," TD Cowen analyst Derrick Wood wrote in a Thursday note.

Wood believes this announcement was a "major reason" for a selloff in software stocks on Wednesday and Thursday. The iShares Expanded Tech-Software Sector ETF IGV has fallen 5% in over the past two trading sessions.

ServiceNow's AI Control Tower provides a platform for businesses to monitor and govern AI agents across different environments.

The stock's initial momentum was spurred by a strong second quarter. ServiceNow posted subscription revenue of $3.88 billion for the second quarter, up 25% year over year. The main focus of the print was ServiceNow's current remaining performance obligations, or the amount of revenue expected to be recognized in the next 12 months, which rose 21% to $13.2 billion.

ServiceNow also showed strong AI traction as the company's AI annual contract value surpassed $1 billion, putting the company ahead of schedule to beat its year-end target of $1.5 billion. But the company's growing AI momentum was overshadowed by Presence.

Some argued that the fears of displacement from AI are overblown. ServiceNow serves as an enterprise's system of record, or official data source. That gives ServiceNow a "key strategic advantage versus third-party AI tools" that need to extract, contextualize and reintegrate data across platforms, Bank of America analyst Tal Liani wrote in a Thursday note.

However, while Presence appears to lack the robust data-management tools necessary to be a system of record, it could still be a credible threat. Presence "represents a new push to play in the AI agent building, orchestration and governance layers," TD Cowen's Wood wrote.

Now read: These signs suggest investors should give the software sector a second chance

-Christine Ji

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07-23-26 1741ET