Warning to All Investors: One Mistake Was Enough for This AI Stock to Plunge 30%

ServiceNow shares took a beating after the software company published its quarterly results, with the stock price plunging roughly 30% in a single day, from more than $150 to nearly $100. Although revenue itself beat analysts’ expectations and rose 20.5% year over year to $4.11 billion, investors were disappointed by slightly lower earnings per share and, above all, a weaker outlook for future orders, which raised serious concerns about the sustainability of further growth.

Don’t miss: TOP 10 countries with the fastest crypto adoption

ServiceNow shares pay the price for expensive acquisitions and a sharp rise in interest costs

Adjusted earnings per share came in at $1.00 versus the expected $1.02, but the company’s steeply rising financing costs became a far more significant problem. ServiceNow’s interest expenses shot up year over year from a mere $6 million to $81 million as a result of the heavy debt used to finance the strategic acquisition of the security firm Armis. While revenue grew by more than a fifth, earnings per share increased by only 5%, confirming that the company has so far been unable to turn higher revenue into corresponding profitability.

The key disappointment for Wall Street was the cRPO metric, which measures the value of contracted services expected to be recognized over the next 12 months. After 21% growth in the third quarter, management forecast a slowdown to 18.5% for the final quarter, while analysts had been expecting figures around 20%. Chief Financial Officer Gina Mastantuono attributed the weaker outlook to the earlier closing of some deals and specific government contracts, but she failed to calm investors’ nerves.

Also read: Trust Wallet review: Take control of your cryptocurrencies with confidence

ServiceNow shares under pressure: AI infrastructure is swallowing corporate budgets

Investment priorities in the technology market are changing radically, with corporations shifting most of their capital directly into computing power and data centers for artificial intelligence, as demonstrated by the 48% growth of Azure cloud at Microsoft. Application software, which forms the core of ServiceNow’s business, is thus being pushed onto the back burner at many customers, and the company still has to convincingly prove that it can turn the wave of interest in AI into new lucrative contracts. An important test will be the December report from rival Salesforce, which will indicate whether this is a problem for the entire software sector or only for ServiceNow.

The stretched valuation also played a role in the massive sell-off, as ServiceNow shares had gained 43% in the three months before the results, and the forward P/E ratio climbed from 20 in April to 33. Once the company failed to meet these inflated expectations, the market reacted with an immediate and uncompromising correction. Although analysts continue to expect long-term annual growth in normalized earnings of around 20% and keep the average price target at $159.14, the company’s ability to reignite the momentum of future orders will be decisive for what comes next.

You might also like: crypto4me review

Sources:

Photo source: AI-generated (Adobe Stock)

author avatar
Hynek Král
Hynek Král is an independent analyst and investor specializing in the cryptocurrency ecosystem, with a primary focus on Bitcoin (BTC) and Ethereum (ETH). His work effectively bridges the gap between current market news, in-depth technical analysis, and practical professional trading strategies.