ServiceNow Stock Falls 12% on Iran War Deal Delays

ServiceNow reported first-quarter earnings that matched estimates but delivered disappointing news about the impact of the Iran war. The company said delays in closing large government deals in the Middle East created a 75 basis-point headwind to revenue growth. This is significant because these on-premise deals are recorded as large, one-time purchases. While ServiceNow expects to make up the revenue later this year, the news spooked investors.

The company also lowered its full-year adjusted operating margin guidance and reported billings that missed expectations. Combined with ongoing market fears about AI disruption to traditional software, these factors led to a 12% drop in ServiceNow's stock after hours.

IBM reported on the same day, beating earnings estimates but also citing the Iran war as a factor. CEO Arvind Krishna said the war was weighing on the company's guidance, leading IBM to hold its outlook steady rather than raise it. This decision, driven by macroeconomic uncertainty, caused IBM's stock to fall 7% after hours.

These reports mark the first major earnings season since the Iran war began, providing concrete evidence that the conflict is affecting corporate America beyond just energy and commodity prices. The common thread is uncertainty, which is causing customers, especially governments, to pause on finalizing large contracts.

This matters because it shows geopolitical risk translating directly into financial results. Prior to these reports, investors may have assumed tech stocks were insulated from a regional conflict in the Middle East. ServiceNow and IBM have proven that assumption wrong, revealing a direct channel of impact through delayed government procurement.

The news signals that uncertainty from the Iran war is a sector-wide issue, not isolated to one company. Other software and IT services firms with significant government or large enterprise business in the region could face similar headwinds in the coming quarters. Investors should prepare for potentially muted guidance across the sector.

For ServiceNow specifically, the deal delays highlight a vulnerability in its business model related to large, upfront purchases. While the company expects to recapture the revenue, the delay impacts near-term cash flow and growth metrics, which are critical for high-valuation SaaS stocks.

Finally, this adds another layer of complexity to the investment thesis for software stocks, which are already grappling with concerns about economic slowdown and AI disruption. The introduction of a persistent geopolitical overhang could limit stock price appreciation until there is more clarity on the conflict's resolution.