ServiceNow Is Down 51% as Wall Street Bets AI Will Gut Its Business. July 22 Will Show Who's Right.

The market has spent 2026 betting that generative artificial intelligence (AI) will hollow out enterprise software, and few large companies wear that bet more visibly than ServiceNow (NYSE: NOW). Shares trade near $103 as of this writing, down about 51% from their 52-week high of $210.20.

The sell-off has come even as the company's reported growth has barely wobbled.

That sets up an unusually clean experiment. On Wednesday, July 22, after the market closes, ServiceNow reports second-quarter results. If the AI-disruption thesis is right, the damage should be starting to show up in the numbers by now. If it's wrong, the stock is trading at a steep discount for no good reason.

Here's what to watch.

Image source: The Motley Fool.

The bear case meets the reported numbers

The fear weight on the stock is easy to peg: AI agents could let companies automate workflows themselves, eroding demand for the subscription software ServiceNow sells. The same worry has dragged down software stocks broadly this year. Salesforce, for instance, trades almost 40% below its own 52-week high.

So far, though, ServiceNow's results read like a rebuttal. First-quarter subscription revenue rose 22% year over year to $3.67 billion, or 19% on a constant-currency basis, beating the high end of management's guidance. That was an acceleration from 21% growth in the fourth quarter of 2025. Current remaining performance obligations (cRPO), which represent contract revenue the company expects to recognize over the next 12 months, climbed 22.5% year over year to $12.64 billion. And the company closed 16 deals over $5 million in net new annual contract value during the quarter, up nearly 80% from a year earlier.

Notably, AI looks more like the thing ServiceNow is selling than the thing killing it. The company said its customers with more than $1 million in annual contract value for Now Assist, its generative AI offering, grew more than 130% year over year in Q1.

Also worth noting: Total remaining performance obligations, which capture all of ServiceNow's contracted revenue including amounts beyond the next 12 months, rose 25% year over year to $27.7 billion, growing faster than the current portion.

Cash generation is holding up as well. First-quarter free cash flow was about $1.7 billion, translating to a 44% free cash flow margin.

If there's a soft spot, it's subtle. That 22.5% cRPO growth was modestly slower than the 25% pace ServiceNow posted in the fourth quarter of 2025, though currency explains much of the step-down (growth held at 21% in constant currency in both periods). Still, contracted revenue is where real demand erosion would show up first -- well before it reaches reported revenue -- which makes it the line bears are watching.

The numbers to watch on Wednesday

Management's own targets make the scorecard simple. Guidance calls for second-quarter subscription revenue of $3.815 billion to $3.82 billion, or about 22.5% year-over-year growth. For the full year, the company expects subscription revenue of $15.735 billion to $15.775 billion, up 22% to 22.5%.

Three numbers will tell the story. Subscription revenue against that guidance range. The cRPO growth rate, and specifically its ability to hold above 20%. And the full-year outlook, which management has raised once already this year.

The stakes come down to valuation. ServiceNow trades at about 24 times consensus earnings-per-share estimates for the next 12 months and about 7.5 times trailing sales.

For a company growing revenue north of 20% with a 44% free cash flow margin, that is arguably a price built on fear. Software businesses with this profile commanded far richer multiples before AI anxiety took over -- ServiceNow itself did.

Of course, the discount only looks irrational if the growth holds. A meaningful cRPO slowdown or a trimmed outlook on Wednesday would hand the bears their first real piece of evidence, and the growth stock could get hit hard from an already low base.

I believe the fear is running well ahead of the facts. Customers aren't behaving like a disruption is underway. They're signing bigger, longer contracts that include the company's AI products.

But nobody has to guess here. Wednesday's report will either show the forward metrics holding -- or it won't.

If I owned the stock, I'd hold it through the report. For anyone considering buying, however, be cautious. It's impossible to know what happens in the short-term.

If subscription growth and cRPO hold up and the outlook rises again, the AI-disruption discount will start to look less like foresight and more like fear. And a 51% markdown on a 20% grower likely won't stay unnoticed for long.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Salesforce and ServiceNow. The Motley Fool has a disclosure policy.