ServiceNow's stock just had its worst day ever, taking the software sector down with it

By Hannah Pedone

A prominent software ETF saw its biggest daily decline in a year. There's 'no room for nuance' in the sector, an analyst says.

ServiceNow's stock closed down 17.8% on Thursday.

As ServiceNow's stock sank to its worst day on record, the broader software sector took a tumble as well.

While some of the quibbles with ServiceNow's latest earnings are more company-specific, including margin impacts related to recent deal closures, other aspects may have wider implications for the sector. For instance, some Middle East deals failed to close on time due to the Iran war.

There's "no room for nuance," when it comes to software stocks these days, William Blair analyst Arjun Bhatia said in a note to clients.

ServiceNow's stock (NOW) closed down 17.8% on Thursday, making it the worst-performing stock in the iShares Expanded Tech-Software Sector ETF IGV. The ETF closed down 5.8%, its largest percentage decrease since a 6.2% drop on April 4, 2025, according to Dow Jones Market Data.

Shares of Salesforce (CRM) closed down 8.7%, its steepest one-day drop since a 19.7% tumble on May 30, 2024.

"Less than crisp earnings are likely to get punished," Bhatia said of ServiceNow, adding that investors are taking a "shoot first, ask questions later" approach to the sector.

Read more: Why ServiceNow's stock is sliding in the wake of earnings

Investors could quibble with various trends in ServiceNow's report. For instance, the company reduced its full-year adjusted operating-margin guidance to 31.5% from 32%, and its second-quarter forecast came in at 26.5%, falling below consensus.

Subscription revenue was also a pain point. ServiceNow reported $3.67 billion in subscription revenue for the first quarter, representing growth of 19% in constant currency, down from 19.5% in the previous quarter.

Patrick Walravens, the head of technology equity research at Citizens JMP, said he expects the company to reaccelerate subscription revenue growth in the second quarter, and ServiceNow's outlook calls for 21% to 21.5% growth on an adjusted basis. But investors may be waiting for proof points that the company's business can reignite in the face of software-sector jitters.

The company also has to contend with delayed deal closures related to uncertainty from the Middle East conflict.

That said, ServiceNow showed encouraging results on the AI front, according to Cantor Fitzgerald's Thomas Blakey. He noted that the company now expects $1.5 billion in revenue this year from its Now Assist generative AI offering, up from a previous $1 billion projection.

Management has been calling for a "hockey stick" in AI consumption during the second half of 2026 and into 2027, and Blakey said the guidance boost suggests that dynamic is materializing ahead of schedule.

See also: IBM's stock falls as software revenue underwhelms

-Hannah Pedone

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04-23-26 1707ET