Is ServiceNow's Post-Q3 Selloff a Buying Opportunity Amid Record Guidance and AI-Driven Growth?

The recent 10.7% selloff in ServiceNow (NOW) following its Q3 2025 earnings report has sparked debate among investors. While the company delivered record revenue growth of 21.8% year-over-year to $3.41 billion and raised full-year guidance, the stock's decline reflects broader market skepticism about valuations. For contrarian investors, this divergence between fundamentals and price action raises a critical question: Is the selloff a buying opportunity, or does it signal deeper structural risks?

Strong Fundamentals and AI-Driven Momentum

ServiceNow's Q3 results underscore its dominance in the enterprise software sector. The company not only exceeded revenue and EPS estimates but also demonstrated robust demand for its AI-powered offerings. According to a report by Investing.com, ServiceNow's AI-infused tools, such as AI Control Tower and Now Assist, have driven a 55-fold increase in AI agent-assist consumption since May 2025. This acceleration positions the firm to surpass its $500 million AI product annual contract value target for 2025.

Moreover, ServiceNow's expansion into the U.S. federal market has been a key growth driver. Federal contracts grew 30% year-over-year, reflecting the company's ability to scale in high-margin, mission-critical sectors. The firm also announced a strategic investment in Genesys, signaling its intent to broaden its AI ecosystem. These moves, combined with a 5-for-1 stock split to improve retail accessibility, suggest ServiceNow is actively positioning itself for long-term dominance.

Valuation Concerns and Contrarian Logic

Despite these positives, ServiceNow's valuation metrics remain elevated. As of November 26, 2025, the stock trades at a forward P/E of 54.69 and a P/S ratio of 15.76, both significantly above the software industry averages of 30.8x and 8.5x, respectively according to industry benchmarks. The selloff has trimmed the P/E to 99x from a peak of 107x in August, but the price-to-operating profit (P/OP) ratio of 78x still reflects premium expectations according to financial analysis.

However, a discounted cash flow (DCF) analysis suggests the stock may be undervalued. Yahoo Finance estimates ServiceNow's intrinsic value at $937.40 per share, implying a 10.8% discount to its current price. This discrepancy highlights a potential mispricing: while the market penalizes ServiceNow for its high multiples, the company's strong free cash flow margins projected to expand to 34% in 2025 and AI-driven efficiency gains could justify a premium.

Bullish Analyst Consensus and Strategic Resilience

Analysts remain optimistic despite the selloff. RBC Capital's Matthew Hedberg and CMB International's Saiyi He have maintained "Buy" ratings with price targets of $1,200 and $1,180, respectively, implying a 22–37% upside. Wall Street's average price target of $1,124.82 according to market analysis suggests the market still views ServiceNow as a high-conviction growth story.

The selloff may also be overcorrecting for macroeconomic risks. As noted by Forbes, the decline reflects broader investor caution about interest rate uncertainty and sector-wide corrections, not a fundamental flaw in ServiceNow's business model. The company's raised 2025 guidance-subscription revenue now projected at $12.845 billion-further reinforces its ability to deliver on growth promises.

Risks and the Path Forward

Critics argue that ServiceNow's high valuation leaves little room for error. Competitive pressures from Microsoft and Salesforce, coupled with potential federal market timing risks, could dampen growth. Additionally, the stock's P/E of 100.2x remains a stark outlier compared to peers.

Yet for contrarians, these risks are already priced in. The selloff has created a margin of safety for investors who believe in ServiceNow's AI-driven transformation and its ability to maintain high-margin growth. The 5-for-1 stock split, set for shareholder approval on December 5, could further democratize ownership and attract retail investors, potentially stabilizing the stock.

Conclusion

ServiceNow's post-Q3 selloff represents a complex interplay of strong fundamentals and valuation skepticism. While the company's AI momentum and guidance raises are compelling, the stock's premium multiples demand careful scrutiny. For investors with a long-term horizon, the current price offers an opportunity to participate in a business that is redefining enterprise software through AI innovation. As RBC Capital's analysts note, "The selloff is a buying opportunity for those who recognize ServiceNow's structural advantages in a high-growth sector"