# ServiceNow faces government contract slump ahead of earnings as AI unit hits $600 million

> ServiceNow stock has dropped 43% to $81, hit by a 72% collapse in U.S. government orders. Major institutions are buying anyway, now holding 87% of shares, with analysts targeting $173.

- Type: AI news
- Page: https://completeaitraining.com/news/servicenow-faces-government-contract-slump-ahead-of/
- Published: 2026-04-21
- Updated: 2026-04-21
- Author: Jeroen Erne
- Jobs: Government
- Reading time: 2 min

### ServiceNow's Stock Collapse Masks Institutional Confidence Amid Government Sector Weakness

ServiceNow stock has fallen to $81, down 43% since January, yet major institutional investors are buying aggressively. Merit Financial Group increased its stake by 563%, and Tokio Marine Asset Management added 405% more shares. Institutions now control 87% of the company's outstanding shares.

Wall Street analysts tell a different story. TD Cowen cut its price target from $185 to $140. Citi dropped its outlook from $237 to $177. Truist and Oppenheimer followed with similar cuts. The consensus remains a "Moderate Buy" with a $173 target, implying 78% upside from current prices-if the company executes.

#### Government Orders Crater 72%

The immediate problem is clear: U.S. government agencies cut orders by 72% year-over-year to $48 million. This figure is normally twice as high. A partial federal shutdown delayed contract signings and weakened the company's remaining performance obligation, a metric that forecasts future revenue.

This matters for [AI for Government](https://completeaitraining.com/tag/government/) professionals because it signals budget uncertainty across federal agencies. Delayed procurement cycles directly impact software deployment timelines and IT modernization efforts across government departments.

ServiceNow's guidance promised 20% growth in remaining performance obligations. The government slowdown creates a gap between that promise and current business signals, which point to mid-20% growth instead.

#### The $600 Million AI Bet

ServiceNow's "Now Assist" software suite generated $600 million in annual contract value last year, with a target of $1 billion by year-end 2026. Industry reports show accelerating adoption of these [Generative AI and LLM](https://completeaitraining.com/tag/generative-ai-and-llm/) tools.

Analysts believe ServiceNow could become the first major software company to derive over 10% of its revenue from AI products, potentially by the fourth quarter. The company secured a $3 billion credit line to fund this transition.

#### What to Watch Tuesday

ServiceNow reports first-quarter earnings on Tuesday, April 22. Analysts expect $0.80 earnings per share on $3.75 billion in revenue. The company posted $0.92 EPS on $3.57 billion last quarter, beating estimates.

The company's financial health remains sound. Gross margins near 78% and annual free cash flow of $4.6 billion provide cushion for the AI investment.

Management must address the gap between current growth rates and the stock's implied expectations. A discounted cash flow analysis suggests the current price assumes 30% annual profit growth over five years, while business indicators point to mid-20% growth.

ServiceNow hosts its Financial Analyst Day on May 4 in Las Vegas. That event could serve as a recovery catalyst if executives articulate a credible path for AI revenue growth. Until then, the stock's direction depends on whether the company can prove its $600 million AI opportunity outweighs the $48 million government sector problem.

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