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Talk about a jittery market. Shares of ServiceNow dropped 11.5% on Monday after a weekend report that the enterprise software firm was in “advanced talks” to buy cybersecurity firm Armis for $7 billion. The stock sell-off wiped $21 billion off ServiceNow’s market capitalization—reducing it to $159 billion—which seems something of an overreaction. But it’s a demonstration that nowadays investors are selling first and asking questions later.
Investors have turned particularly negative towards the smaller cloud firms that are spending heavily to build capacity for servicing OpenAI and other AI developers. Shares of Oracle and CoreWeave both fell today, continuing a sell-off that started last week over fears about their exposure to a sector whose future remains uncertain. In the case of ServiceNow, the concern is slightly different, relating to the worries that AI will cannibalize companies selling subscription software to businesses. As KeyBanc analyst Jackson Ader said in a note on Sunday, there’s a risk that ServiceNow “gets brought into the at-risk-from-AI tent in the coming quarters.”
Ader made that point based on what he called “some worrying trends in IT back-office employment data,” implying that demand for ServiceNow’s IT help desk services might slacken if companies employ fewer of those workers. The weekend’s news simply reinforces that concern by fueling the worry that ServiceNow is pursuing acquisitions because it’s not growing fast enough otherwise. Armis would be ServiceNow’s fourth acquisition this year costing $500 million or more. A couple of weeks ago, ServiceNow announced the purchase of another security firm, Veza, for a price we reported was between $1 billion and $1.5 billion. Today ServiceNow completed the $2.85 billion purchase of AI startup Moveworks, a deal it announced in March. It also bought an e-commerce–related firm in May for $506 million in stock. Four sizable acquisitions in a few months is a lot for a company that hasn’t historically done many.
This is the bear thesis, to be clear. One flaw in it is that ServiceNow’s growth rate looks healthy: for the past few quarters, its top line has expanded around 20% or more. That’s about twice as fast as better-known software firms such as Adobe and Salesforce. Moreover, the Veza purchase, and the possible Armis deal, aim to build out ServiceNow’s capabilities in cybersecurity, which has to be one of the most important software categories for businesses given the proliferation of security breaches. And it’s possible ServiceNow CEO Bill McDermott has become so interested in acquisitions this year because the Trump administration’s antitrust regulators are more open to tech mergers and acquisitions than they were under the Biden administration.
None of that means McDermott isn’t also anxious about continuing growth. After all, his job is to look out ahead and deal with potential trouble. But perhaps investors shouldn’t panic, at least not yet.
How Not to Preserve Competition
Antitrust regulators got a lesson in preserving competition today: Blocking acquisitions isn’t always the solution. The company behind the Roomba robotic vacuum cleaner, iRobot, filed for bankruptcy on Sunday after a long decline caused by competition. As part of the bankruptcy, the company has reached a deal to be acquired by one of its creditors, Shenzhen Picea Robotics, the Chinese company that actually makes the device (iRobot designs its robots but it doesn’t make them).
Being swallowed up by a Chinese company didn’t have to be the ending for iRobot, which three roboticists from the Massachusetts Institute of Technology founded in 1990. In 2022, Amazon agreed to buy iRobot for $1.7 billion, or $61 a share. But after a long investigation by antitrust authorities in the U.S. and Europe, Amazon abandoned the purchase.
The Federal Trade Commission, then overseen by Lina Khan, put out a statement saying it was “pleased”—as though killing the deal was a feather in its cap. The FTC’s concern was that Amazon would have an “incentive to favor its own products.” But Amazon didn’t need to own Roomba to promote the product. As iRobot said in a bankruptcy court filing on Sunday, 35% of iRobot’s sales in 2024 came through Amazon. “A substantial portion of iRobot’s online strategy is driven through Amazon.com,” the bankruptcy filing said.
At the time the deal fell apart, Amazon CEO Andy Jassy said on CNBC that regulators appeared to trust Chinese firms “more than they do Amazon.” It certainly seems that way.
In Other News
• OpenAI is hiring Albert Lee, a long-time executive at Google, as head of corporate development, according to people with knowledge of his move. The hire signals OpenAI’s interest in pursuing acquisitions and strategic investments as a key component of future growth, said a person close to OpenAI.
• The Trump administration has launched a new program, dubbed Tech Force, to recruit engineers to work on AI inside federal agencies. People who sign up for the two-year program will collaborate with partner tech companies including Google, Meta Platforms, Apple, OpenAI and xAI, according to a government website.
• Tesla shares were trading up 4% on Monday after CEO Elon Musk confirmed the company has started testing its Robotaxi vehicles in Austin, Texas, without human backup drivers inside the cars.
• Former Shopify executive Glen Coates has joined OpenAI as the company’s head of app platform, he said in a LinkedIn post Monday.
Check out our latest episode of TITV in which we speak with editor Nick Wingfield about the prospect of data centers in outer space.
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