ServiceNow Drops 32% Year to Date: Should You Still Buy the Stock?

ServiceNow NOW shares have plunged 31.7% year to date (YTD), underperforming the Zacks Computer and Technology sector’s drop of 7.5%, reflecting macroeconomic challenges, currency fluctuations and stiff competition. NOW’s SaaS business model has suffered from strong adoption of AI-native solutions. A shift from self-hosted deployments to hosted and hyperscaler-based offerings is expected to create about a 150-basis-point (bps) headwind to subscription revenue growth in the first quarter of 2026. Intensifying competition from the likes of Microsoft MSFT, Oracle ORCL and Salesforce CRM has been a headwind. Shares of Microsoft, Oracle and Salesforce have dropped 23.5%, 24.5% and 29.5% YTD.

So, what should investors do with ServiceNow shares? Let’s find out.

NOW Stock’s Price Performance

Image Source: Zacks Investment Research

NOW’s Expanding AI Platform to Boost Top-Line Growth

ServiceNow’s expanding AI platform is accelerating enterprise automation and digital transformation. The company is positioning itself as the “AI control tower for business reinvention” that turns AI insights into actual enterprise execution. The company’s ongoing transition from being an ITSM tool to an enterprise-wide workflow platform is expected to drive the user base. NOW is offering end-to-end workflows for enterprises that are driving productivity and automation while simultaneously lowering cost.

NOW’s prospect benefits from an expanding total addressable market (TAM) with additions of AI agents, security (with Armis acquisition), identity (with Veza acquisition) and employee as well as customer workflows. Management now believes TAM has expanded from roughly $90 billion to $600 billion thanks to frequent acquisitions. Moreover, collaborations with the likes of Figma, NTT Data, Microsoft, OpenAI, Anthropic, Fiserv and Panasonic Avionics aim to integrate advanced AI models, copilots and agents into enterprise workflows, improving interoperability and accelerating adoption of AI-powered solutions.

The company’s strong portfolio is helping ServiceNow expand its enterprise customer base. As of the end of 2025, the company served more than 8,800 global customers, including more than 85% of the Fortune 500, reflecting the strong adoption of its cloud-based platform among large enterprises. These organizations rely on the ServiceNow AI Platform to support digital transformation initiatives and automate workflows across critical business operations. High customer retention and continued enterprise expansion further strengthen ServiceNow’s growth outlook. The company reported a 98% renewal rate, underscoring the mission-critical nature of its platform for enterprise customers.

The company is also seeing deeper engagement from large customers, which is driving higher contract values and recurring revenues. In the fourth quarter of 2025 alone, ServiceNow closed 244 deals worth more than $1 million in net new Annual Contract Value (ACV), highlighting strong enterprise demand for its solutions. The number of customers generating more than $5 million in ACV reached 603, while the number of customers contributing more than $20 million annually grew by more than 30% year over year. These trends indicate increasing adoption of multiple products and broader platform deployments within existing enterprises.

NOW’s Subscription Guidance Reflects Slowing Growth

ServiceNow raised subscription revenue guidance for 2026, which is now expected between $15.530 billion and $15.570 billion, suggesting 19.5-20% on a non-GAAP constant currency (cc) basis. However, the growth rate is slower than 20.5% reported in 2025. For first-quarter 2026, NOW expects subscription revenues between $3.65 billion and $3.655 billion, suggesting year-over-year growth in the 18.5-19% range at cc.

The Zacks Consensus Estimate for NOW’s 2026 revenues is pegged at $15.98 billion and indicates 20.32% growth from 2025’s reported figure. The consensus mark for NOW’s first-quarter 2026 revenues is currently pegged at $3.75 billion, suggesting 21.39% growth over the figure reported in the year-ago quarter.

ServiceNow, Inc. Price and Consensus

ServiceNow, Inc. price-consensus-chart | ServiceNow, Inc. Quote

The Zacks Consensus Estimate for NOW’s 2026 earnings has been steady at $4.14 per share over the past 30 days and indicates 17.95% growth from 2025’s reported figure. The consensus mark for NOW’s first quarter 2026 earnings estimate is currently pegged at 95 cents per share, unchanged over the past 30 days and suggests 17.28% growth over the figure reported in the year-ago quarter.

NOW Stock Trades at a Premium

ServiceNow stock has a Value Score of F, which suggests a stretched valuation at this moment.

The stock is trading at a premium, with a forward 12-month price/sales of 6.55X compared with the broader sector’s 5.72X, Oracle’s 5.01X and Salesforce’s 3.69X. However, NOW shares are trading below Microsoft’s P/S multiple of 7.58.

NOW Valuation

Image Source: Zacks Investment Research

Conclusion

NOW’s expanding TAM, strong portfolio, growing workflow adoption and rich partner base are expected to improve its top-line growth. This also justifies a premium valuation.

ServiceNow currently has a Zacks Rank #2 (Buy) and a Growth Score of A, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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