Key Highlights

● ServiceNow's adjusted EPS of $1.00 missed by two cents.

● Fourth-quarter guidance underwhelmed investors.

● The company's AI target also fell short of hopes.

● The Armis acquisition weighed on results.

ServiceNow shares plunged in extended trading after the enterprise software company narrowly missed on earnings, issued fourth-quarter guidance that disappointed, and set an AI target that failed to impress.

ServiceNow (NYSE:NOW) plunged after the bell on Wednesday, October 28, after the enterprise software company's third-quarter report and outlook fell short of what investors had hoped for. The shares tumbled in extended trading, with reports differing on the exact size of the decline. Either way, it was one of the steepest after-hours drops among S&P 500 companies reporting Wednesday evening.

A Miss and a Muted Outlook

ServiceNow reported adjusted earnings of $1.00 a share, missing forecasts by two cents, according to one market recap. A narrow miss on its own might not have triggered such a sharp reaction.

The bigger issue was what came next. ServiceNow's fourth-quarter guidance and its AI target underwhelmed investors, according to market reports, and its acquisition of cybersecurity firm Armis also weighed on results. Investors appeared to focus on the outlook as a signal that growth, particularly from AI products, may not be accelerating as quickly as hoped.

Why AI Expectations Matter

ServiceNow sells cloud-based software that helps large organizations manage IT services, customer service, human resources and other workflows. The company has positioned itself as a leading beneficiary of generative AI, embedding AI agents and assistants into its platform and charging customers for premium AI features.

That positioning has made AI targets especially important to how investors value the stock. When those targets fall short of expectations, the reaction can be swift. The software sector more broadly has faced questions about whether AI will boost demand for existing applications or disrupt them, and Wednesday's report did little to settle that debate for ServiceNow shareholders.

Software Stumbles After Hours

ServiceNow was not the only software name hit after the close. Fortinet (NASDAQ:FTNT), the cybersecurity company, also plunged in extended trading, though sources differed on its results, with one saying gross margin fell short and another describing results as solid with raised guidance.

Alphabet (NASDAQ:GOOGL) slid sharply after the bell on an earnings miss and negative free cash flow, while Microsoft (NASDAQ:MSFT) rose on a revenue beat and accelerating Azure growth. The split showed how unforgiving investors have become toward any sign of weakness in AI-related results.

What to Watch

Before the after-hours reports, the S&P 500 rose 21.38 points to 7,743.98, its third straight gain. The Federal Reserve left its benchmark rate range unchanged in a 10-2 vote, and long-dated Treasury yields climbed.

Thursday's regular session will show how much of ServiceNow's after-hours decline holds, and whether it weighs on other enterprise software stocks. Investors will also be looking for analyst reactions to the company's guidance and AI target, and for more detail on how the Armis deal affects margins.