ServiceNow: Assessing Long-Term Strength vs. Valuation Concerns in 2025

ServiceNow (NOW) has long been a cornerstone of the enterprise software sector, dominating the IT service management (ITSM) market and expanding into adjacent domains like workflow automation and AI-driven operations. As of October 2025, the company's financial performance and valuation metrics present a compelling case for both optimism and caution. This analysis evaluates whether ServiceNow remains a compelling buy at its current price of $894.49, trading with a market cap of $185.62 billion, according to StockAnalysis.

Financial Strength: Sustained Growth and Margin Expansion

ServiceNow's Q2 2025 results underscore its operational resilience. Revenue surged 22.38% year-over-year to $3.215 billion, with subscription revenue growing 22.5% to $3.113 billion, according to Simply Wall St. Earnings per share (EPS) of $4.09 exceeded analyst estimates by 14.6%, reflecting disciplined cost management and pricing power, according to TradingKey. The company's operating margin of 29.5% in Q2 exceeded guidance by 250 basis points, while free cash flow margins expanded by 300 basis points year-over-year to 16.5%, according to TipRanks.

Historically, ServiceNow's earnings beats have shown mixed signals for investors. A backtest of its post-earnings-beat performance from 2022 to 2025 reveals that while the stock occasionally outperforms in the short term, the average 1-day excess return is negative (-0.63%), and cumulative excess returns converge to near-zero over 30 days. This suggests that a simple buy-and-hold strategy following earnings beats has not generated a statistically significant edge relative to the S&P 500.

Looking ahead, ServiceNow raised its full-year 2025 subscription revenue guidance to a midpoint of $12.785 billion, implying 20% growth. Q3 2025 guidance of $3.26 billion in subscription revenue (20–20.5% YoY growth) further reinforces confidence in its execution, according to TipRanks. These metrics highlight ServiceNow's ability to scale profitably, even as it invests in AI integrations and platform enhancements.

Valuation Metrics: A Tale of Two Perspectives

ServiceNow's valuation remains a contentious topic. On one hand, its trailing P/E ratio of 111x and P/S ratio of 15.84, according to Webull, starkly exceed the software industry averages of 35x and 2.52, respectively, a point also discussed by TradingKey. Analysts at Simply Wall St argue that a "fair" P/E of 50x would better align with the company's growth trajectory and risk profile, suggesting the stock is currently overvalued by nearly 120%.

Conversely, a discounted cash flow (DCF) analysis places ServiceNow's intrinsic value near $888.94 per share, just below its current price, per Simply Wall St. This implies the market has priced in near-perfect execution, including the company's AI partnerships and expansion into vertical-specific solutions. However, forward valuations-57x non-GAAP and 109x GAAP earnings-reflect limited upside for near-term growth, particularly as ServiceNow's revenue growth slows from 25% to 19%, a dynamic explored by TradingKey.

Industry Position and Competitive Dynamics

ServiceNow's dominance in ITSM remains unchallenged, but its foray into AI and automation faces intensifying competition. Microsoft and Salesforce are leveraging their ecosystem advantages to encroach on ServiceNow's core markets, while startups offer niche solutions at lower price points. Despite this, ServiceNow's platform stickiness-driven by its Now Platform's modular architecture and deep enterprise integration-provides a durable moat.

Analysts remain bullish on the company's long-term potential. A "Strong Buy" consensus from 34 of 42 analysts (TipRanks) and an average price target of $1,108.10 (StockAnalysis) reflect confidence in its ability to maintain high-margin growth. However, the stock's 15.7% year-to-date decline underscores market skepticism about its valuation and growth sustainability.

Conclusion: A Calculated Buy?

ServiceNow's financials and product roadmap justify its premium valuation, but investors must weigh the risks. The company's DCF-derived fair value aligns closely with its current price, suggesting it is neither significantly overvalued nor undervalued. However, traditional metrics like P/E and P/S ratios indicate a stock priced for perfection, with limited margin of safety.

For long-term investors, ServiceNow's leadership in enterprise automation and recurring revenue model remain compelling. Yet, the stock's elevated multiples and competitive pressures warrant caution. A pullback to the DCF fair value range of $883–$889 could present a more attractive entry point, particularly if Q3 2025 results meet or exceed guidance. In the near term, ServiceNow remains a "buy" for those comfortable with its valuation risks, but not a "no-brainer" at current levels.