Software company soars amid plans to cut 1,000 jobs

ServiceNow (NOW) plans to cut up to 1,000 jobs, and its stock went up on the news.

That reaction surprised many people, given that layoffs usually signal trouble. Yet NOW’s stock price climbed toward $111 after the plan surfaced, up about 9% over five trading sessions.

The stock had fallen more than 24% year-to-date before the rally because investors had spent months worried that AI would eat into the software ServiceNow sells.

The job cuts, paired with a strong second-quarter report, directly pushed back against that fear.

So the question for investors holding or considering buying ServiceNow is simple. Why did cutting jobs make this stock more attractive?

Why ServiceNow cutting 1,000 jobs pushed NOW stock higher

The cuts equal about 3% of ServiceNow’s global workforce, Investing.com reported after speaking with people familiar with the plan.

Investors read the move as a sign of discipline, not distress. ServiceNow is shrinking overlapping roles while its revenue continues to grow by more than 20% a year.

Wall Street appears to believe the move shows a company can lift margins without slowing its top line, which matters most to investors, given their focus on future profit growth.

The timing helped too. The cuts landed right after an earnings report that many investors had treated as a make-or-break test.

What ServiceNow’s second-quarter earnings told investors

ServiceNow reported second-quarter revenue of $3.99 billion, up 24% from a year earlier, according to Investing.com. That beat the roughly $3.93 billion analysts expected.

Adjusted earnings came in at $0.90 a share, above the $0.86 forecast. The company also raised its full-year subscription revenue outlook.

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The number that drew the most attention was AI. ServiceNow’s AI portfolio crossed $1 billion in annual contract value for the first time.

Annual contract value measures the yearly revenue locked into signed customer deals. Crossing $1 billion showed that customers are paying real money for ServiceNow’s AI tools, not just testing them.

That single figure undercut the biggest bear argument against the stock.

How the AI fear had dragged NOW down all year

For most of 2026, investors feared that AI agents would let companies automate their own workflows and stop paying for software like ServiceNow’s.

That worry hit the whole sector. Salesforce and other enterprise names fell sharply on the same logic.

ServiceNow builds the software that large companies use to run IT support, employee requests, and customer service. If AI could do that work directly, many feared that demand for the software would shrink.

The second-quarter results argued the opposite. Customers running ServiceNow’s AI in production increased ninefold in nine months, Investing.com reported.

Rather than replacing ServiceNow, AI is becoming a product that the company sells.

The headcount math behind the layoffs

CEO Bill McDermott set a specific target. He told investors ServiceNow would finish 2026 with the same headcount it started with, even after buying three companies.

Here is what makes the cuts necessary:

• Starting point: ServiceNow began 2026 with about 29,000 employees.
• Current level: Hiring and acquisitions pushed headcount to roughly 30,000.
• The gap: Returning to 29,000 requires cutting about 1,000 roles.

The three acquisitions driving the overlap are Armis, Veza, and Moveworks. Each brought its own staff, and some roles duplicated jobs ServiceNow already had.

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McDermott framed the goal plainly on the second-quarter call. 

He said ServiceNow would “start 2027 with the exact same headcount before we did the acquisitions,” and that the work would let margins expand.

Where the cuts are landing and when

The reductions are rolling out over several months rather than in one round.

In the United States, ServiceNow filed layoff notices in California affecting close to 300 workers, with formal terminations set to begin September 28, Yahoo Finance reported. 

The San Diego Union-Tribune reported that about 133 of those roles are in San Diego, with a concentration in senior and director-level positions.

Affected roles so far include software engineers, designers, customer-facing staff, and some senior executives. 

International cuts are expected to continue through late 2026 to reach the 29,000 target.

What the “Rule of 56” says about ServiceNow’s efficiency

McDermott pointed investors to a metric called the Rule of 40 to explain why the cuts matter.

The Rule of 40 is a software-industry benchmark. 

It adds a company’s revenue growth rate to its profit margin, and a score above 40 signals a healthy balance between growing and earning money.

ServiceNow said it is now operating at a Rule of 56, with a goal of reaching 60. The job cuts feed directly into that score by lifting margins while revenue keeps climbing.

The company also reported $29 billionin remaining performance obligations, which represent contracted revenue it expects to collect in the future. 

That backlog gives ServiceNow room to trim costs without risking near-term sales.

What NOW investors should weigh next

The rebound is real, but the stock still carries risks worth watching.

Gross margin slipped to about 78% in the second quarter, down from 81% a year earlier. 

Integrating acquisitions and running AI on rented computing power costs money, and those costs may pressure profits in the coming quarters.

Analysts remain split on where the stock goes from here:

• Bank of America kept a Buy rating and a $130 target.
• Guggenheim upgraded NOW to Buy with a $125 target, calling the AI-disruption fear overdone.
• CLSA started coverage with an Underperform rating and a $72 target, arguing the stock still prices in too much AI success.

For investors, the practical read is this: ServiceNow has shown it can grow revenue and cut costs at the same time, which is what turned sentiment around.

The bull case now depends on the company hitting its $1.5 billion AI contract-value target and holding margins steady as it absorbs Armis, Veza, and Moveworks. 

If AI revenue stalls or integration costs run high, the recovery could lose momentum.

Watch the next earnings report for two things: whether AI contract value keeps climbing toward that $1.5 billion goal, and whether gross margin stabilizes. 

Those numbers will show if the turnaround has staying power or was mostly a relief rally.

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