ServiceNow reported fourth-quarter revenue of $3.57 billion, up 21% year-over-year, and adjusted EPS of $0.92, both figures exceeding consensus estimates. Despite these results, shares dropped more than 12% on the day of the announcement. Management pointed to solid cash-flow generation—operating cash flow reached approximately $800 million for the quarter—and maintained a gross margin above 77%, yet investors remained unconvinced that these metrics would sustain the company’s historical growth trajectory.

While total revenue growth stood at 21%, organic revenue climbed only 19% when excluding the impacts of major deals such as the $2.85 billion acquisition of Moveworks and the $7.75 billion purchase of Armis. This organic growth rate fell below the 20% threshold that many investors consider a benchmark for high-growth software companies. Concerns have emerged that integrating these large acquisitions could strain operating leverage, diluting margins over the next several quarters and adding execution risk.

The broader software sector has entered correction territory, with the iShares Expanded Tech-Software ETF down more than 20% from its highs—a reflection of rising anxiety over how generative AI might disrupt incumbents. ServiceNow’s valuation, at roughly 33 times forward earnings, is being scrutinized as analysts debate whether new AI partnerships and in-platform agents can offset potential license erosion. In published notes, several research teams have warned that, without a clear path to accelerate AI-driven revenue beyond existing trends, the multiple may remain under pressure.