ServiceNow Plunges 3.26% Amid Regulatory Scrutiny and AI Security Fears

Summary
• ServiceNow (NOW) tumbles 3.26% to $137.99, its lowest since January 2024
• Intraday swing of $7.51 (5.26%) between $144.695 high and $137.185 low
• Analysts slash price targets while insiders offload shares amid AI platform vulnerability

ServiceNow’s sharp selloff reflects growing unease over its AI security posture and mixed analyst sentiment. The stock’s 3.26% drop—its worst intraday performance since late 2024—coincides with a critical vulnerability patch and conflicting analyst ratings. With short interest surging and institutional ownership concentrated, the move underscores heightened risk in the AI-software sector as regulatory scrutiny intensifies.

Critical AI Security Flaw and Analyst Downgrades Trigger Sharp Selloff
ServiceNow’s collapse stems from a confluence of technical and market factors. The company disclosed a 9.3/10 severity vulnerability (CVE-2025-12420) in its AI platform, enabling unauthenticated users to impersonate legitimate accounts. While patches were deployed, the incident amplified fears about AI system configuration risks. Simultaneously, Goldman Sachs downgraded NOW to Sell, while Oppenheimer cut its price target. Insider selling—$2.5M in shares dumped by executives—further pressured the stock. Short interest surged 364% in December, with 1.6% of shares sold short, reflecting bearish positioning ahead of the selloff.

Application Software Sector Under Pressure as Microsoft Slides 2.14%
The Application Software sector mirrored ServiceNow’s decline, with Microsoft (MSFT) down 2.14% as AI licensing concerns spread. While NOW’s drop was stock-specific, broader worries about AI security and regulatory pushback weighed on the sector. Microsoft’s 2.14% decline—its largest since October—highlighted systemic fragility. However, ServiceNow’s 3.26% drop outpaced peers, reflecting its overhang from the security flaw and analyst downgrades.

Bearish Technicals and High-Leverage Puts Signal Short-Side Opportunity
• RSI: 27.35 (oversold)
• MACD: -155.57 (bearish divergence)
• 200D MA: $855.22 (far above current price)
• Bollinger Bands: $137.19 (lower band) vs. $137.99 (current price)

ServiceNow’s technicals confirm a breakdown. The RSI at 27.35 suggests oversold conditions, while the MACD (-155.57) and 200D MA ($855.22) indicate long-term bearish momentum. The stock is trading near its lower Bollinger Band ($137.19), signaling potential for further downside. The GraniteShares 2x Long NOW Daily ETF (NOWL) is down 7.25%, amplifying leveraged bearish exposure.

Top Options:
1. NOW20260123P130 (Put):
• Strike: $130
• Expiry: 2026-01-23
• IV: 31.73% (moderate)
• Delta: -0.1307 (moderate sensitivity)
• Theta: -0.0027 (slow decay)
• Gamma: 0.02795 (high sensitivity to price swings)
• Turnover: 667 (liquid)
• Leverage Ratio: 270.41%
• Payoff at 5% Downside: $6.995 (max(0, 137.990.95 - 130))
• Why: High gamma and leverage make this put ideal for a 5%+ drop, with moderate IV and liquidity.

2. NOW20260123C140 (Call):
• Strike: $140
• Expiry: 2026-01-23
• IV: 29.90% (moderate)
• Delta: 0.4055 (moderate bullish bias)
• Theta: -0.3314 (rapid decay)
• Gamma: 0.0542 (high sensitivity)
• Turnover: 116,356 (extremely liquid)
• Leverage Ratio: 68.27%
• Payoff at 5% Downside: $0 (max(0, 137.990.95 - 140))
• Why: High gamma and liquidity make this call suitable for a rebound trade, though theta decay requires a swift reversal.

Action: Aggressive bears should prioritize NOW20260123P130 for a 5%+ drop, while cautious bulls may test NOW20260123C140 if $140 breaks with volume.

Backtest ServiceNow Stock Performance
The performance of ServiceNow (NOW) after a -3% intraday plunge from 2022 to now has been backtested. Here are the key findings:1. Average Cumulative Return: The average cumulative return after a -3% intraday plunge was +5.4%. This indicates that, on average, NOW rebounded strongly after such events.2. Event Window Analysis: The 30-day event window analysis shows that the post-event performance of NOW was generally positive, with a cumulative return of +5.4% on average. This suggests that NOW tended to experience upward momentum in the month following a -3% intraday plunge.3. Comparison with Holding Strategy: When compared to a strategy of simply holding the stock, the cumulative return of +5.4% following a -3% intraday plunge indicates that this event had a positive impact on the stock's performance in the short term.In conclusion, ServiceNow (NOW) demonstrated a strong ability to rebound after experiencing a -3% intraday plunge from 2022 to now, as evidenced by the positive average cumulative returns observed in the backtest.

Short-Term Volatility Likely as AI Scrutiny Intensifies
ServiceNow’s selloff reflects a perfect storm of technical weakness, regulatory risk, and analyst skepticism. With RSI at 27.35 and MACD in bearish territory, further declines are probable unless $141.8 (30D support) holds. The sector leader, Microsoft (MSFT), is down 2.14%, signaling broader AI sector fragility. Investors should monitor the $135.73 52W low as a critical floor. For now, short-side positioning via NOW20260123P130 offers the highest conviction trade, while bulls must wait for a confirmed rebound above $144.695 (intraday high).