ServiceNow Plunges 2.6% Amid Tech Sector Turmoil: What's Fueling the Selloff?

Summary
• ServiceNow (NOW) drops 2.67% to $856.43, its lowest since February 2025
• Analysts at Stifel Nicolaus reaffirm a $1,200 price target despite the selloff
• Corporate insiders sold $1.3M in shares this month, signaling caution
• AI-driven growth and valuation pressures dominate investor sentiment

ServiceNow’s sharp intraday decline has drawn attention as the stock trades near its 52-week low of $678.66. The selloff coincides with broader tech sector jitters, regulatory scrutiny of AI strategies, and a bearish technical setup. With the stock down nearly 17% year-to-date and trading at a 105x dynamic P/E, the move reflects growing skepticism about its ability to justify its premium valuation amid slowing growth and macroeconomic headwinds.

Valuation Pressures and AI Uncertainty Weigh on ServiceNow
ServiceNow’s 2.67% drop is driven by a confluence of factors: a 105x dynamic P/E ratio that lags behind Microsoft’s 37x and Oracle’s 54x, intensifying competition in AI workflows, and macroeconomic risks to enterprise IT spending. The stock’s decline mirrors broader investor caution about high-growth tech valuations, particularly as ServiceNow’s AI initiatives—such as Now Assist and AWS Bedrock integrations—struggle to differentiate against Microsoft and Salesforce. Additionally, insider selling of $1.3M in shares and a 51% peak-to-trough drop during the 2022 inflation shock have amplified bearish sentiment.

Tech Sector Volatility Amplifies NOW's Decline as Microsoft Trails Slightly
The Application Software sector is under pressure, with Microsoft (MSFT) down 0.98% intraday. While ServiceNow’s selloff is more pronounced, the broader tech sector’s retreat reflects concerns over AI monetization and macroeconomic risks. Microsoft’s 39% cloud growth outpaces ServiceNow’s 21% Q2 2025 revenue growth, highlighting competitive gaps. However, ServiceNow’s 79% gross margins and $3.85B free cash flow remain structural advantages, suggesting its decline is more valuation-driven than fundamentally flawed.

GraniteShares 2x Long NOW ETF (NOWL) and Bearish Options Play
• 200-day average: 972.84 (below) • RSI: 42.51 (neutral) • MACD: -21.98 (bearish) • Bollinger Bands: 817.94–973.97 (lower band near current price)

ServiceNow’s technicals signal a short-term bearish bias, with the 200-day MA at $972.84 acting as a critical resistance. The RSI at 42.51 suggests oversold conditions, but the MACD’s -21.98 and negative histogram confirm downward momentum. The GraniteShares 2x Long NOW Daily ETF (NOWL), down 5.53%, offers leveraged exposure but carries amplified risk due to its daily rebalancing. For options, the NOW20251003C865 call option (strike $865, expiring Oct 3) has a 0.69% implied volatility ratio and 171,280% leverage ratio, but its zero turnover and volume render it illiquid. A 5% downside scenario (to $813.61) would yield a call payoff of $0 (strike above price) and a put payoff of $51.82 (strike below price).

Top Options Picks:
• NOW20251003C865
- Type: Call
- Strike: $865
- Expiration: 2025-10-03
- IV: 0.69% (low volatility)
- Leverage: 171,280% (extreme)
- Delta: 0.00788 (neutral)
- Theta: -0.007934 (moderate decay)
- Gamma: 0.011259 (high sensitivity)
- Turnover: 0 (illiquid)
- Why: High gamma and leverage suggest potential for rapid gains if the stock rebounds, but illiquidity and low IV make it a speculative bet.

Aggressive bulls may consider NOW20251003C865 into a bounce above $865, but liquidity risks remain a hurdle.

Backtest ServiceNow Stock Performance
The backtest of NOW's performance after an intraday plunge of -3% shows a significant positive return. The strategy achieved an 138.83% return, significantly outperforming the benchmark return of 81.05%. The excess return was 57.78%, indicating that the strategy capitalized on the volatility effectively.

ServiceNow at Crossroads: Watch for $850 Support and Sector Catalysts
ServiceNow’s 2.67% drop underscores its precarious position between structural strengths—$3.85B free cash flow and 79% gross margins—and valuation pressures. The stock’s 52-week low of $678.66 and 105x P/E ratio suggest further downside risk if AI monetization or enterprise IT spending falters. However, a rebound above $865 could reignite bullish momentum, particularly if Microsoft’s -0.98% decline stabilizes. Investors should monitor the $850 support level and sector-wide AI adoption trends. For now, the GraniteShares 2x Long NOW ETF (NOWL) and bearish options like NOW20251003C865 offer high-risk, high-reward plays, but liquidity constraints demand caution.