ServiceNow CEO dismisses AI software threats as 'parlor tricks' as he raises forecasts

13 hours ago 6

ServiceNow reported strong Q1 2026 results, raising forecasts amid AI concerns.
CEO Bill McDermott emphasized ServiceNow's AI product growth and dismissed AI competition threats.
The stock fell on Middle East deal headwinds and questions about the forecast.

ServiceNow reported solid first-quarter results and raised forecasts, underscoring continued demand for its software even as questions swirl about the impact of AI on the industry.

Still, the stock fell 13% in after-hours trading. That reversed some of the gains since April 10.

The company said subscription revenue growth was limited by "delayed closings of several large on-premise deals in the Middle East, due to the ongoing conflict in the region." That risk was also incorporated into ServiceNow's outlook for the rest of 2026.

"Against negative investor expectations, ServiceNow delivered a good quarter despite macro headwinds that arose from the conflict in the Middle East," RBC Capital Markets analysts wrote in a note following the results.

Despite that headwind, the company posted subscription revenue of $3.67 billion in the quarter, up 22% year over year. ServiceNow said it beat the high end of its guidance across all topline growth and profitability metrics in the quarter, and lifted its full-year subscription revenue outlook.

For 2026, ServiceNow now expects subscription revenue of $15.7 billion to $15.8 billion, representing growth of roughly 22% to 22.5%. That beat Cowen analysts' expectations heading into the print.

Questions about the outlook

Still, there were questions about the full-year outlook because ServiceNow has been doing a lot of acquisitions, and those deals are making it harder to assess forecasts.

The company recently acquired cybersecurity company Armis for almost $8 billion. That deal boosted some of ServiceNow's subscription revenue and RPO forecasts, while denting this year's projected profit margins.

Excluding Armis, the 2026 outlook is "mixed," RBC analysts wrote.

CEO dismisses AI threat

CEO Bill McDermott emphasized the company's momentum and once again dismissed the threat of AI in an interview on Tuesday.

"The results speak a lot louder than the words. We're now in another beat and raised quarter," he told Business Insider.

McDermott highlighted accelerating adoption of ServiceNow's AI products as a key driver of growth. The company had previously forecast $1 billion in AI software sales in 2026, and McDermott now expects that to be at least $1.5 billion.

"We'll probably blow through that, too, because the acceptance of our AI solutions is just absolutely stunning," he added.

The company's remaining performance obligations, a key forward-looking metric, rose 25% to $27.7 billion, while current RPO grew 22.5% to $12.64 billion.

"Parlor tricks"

Software stocks, including ServiceNow, have been hammered over the past six months on concerns that generative AI models and related offerings from Anthropic and OpenAI could replace established software services.

McDermott brushed those concerns aside on Tuesday, arguing instead that ServiceNow is benefiting from the shift.

He said customers considering tapping AI models more directly are seeing that the cost of these new approaches can end up being a lot more than expected, due to unpredictable usage-based pricing.

McDermott said the CIO of a major customer recently evaluated a more direct AI model approach for running her IT operations. It would have cost 10 times more than just focusing on ServiceNow's AI offerings, which are more accurate and predictable, McDermott argued.

He called AI model offerings for enterprise software customers "parlor tricks."

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