Is ServiceNow's Selloff a Strategic Buying Opportunity in the AI Era?

ServiceNow (NYSE: NOW) has experienced a sharp selloff in late 2025, with its stock price dropping over 10.7% following the release of its fiscal Q3 2025 results on October 29, despite reporting revenue of $3.41 billion and EPS of $4.82-both exceeding expectations. This volatility has sparked debate among investors: Is the selloff a buying opportunity, or a warning sign of overvaluation in the AI-driven enterprise software sector? A closer examination of ServiceNow's aggressive M&A strategy, particularly its $7 billion acquisition of cybersecurity firm Armis, and its broader platform dominance in the AI era suggests the former.

The Selloff: Catalysts and Contradictions

The immediate trigger for the selloff was a downgrade from Keybanc analyst Jackson Ader, who moved ServiceNow to "Underweight," citing concerns about generative AI disrupting the SaaS model and limiting valuation multiples. However, this bears little relation to the company's financial performance. ServiceNow's Q3 results were robust, with subscription revenue hitting $3.299 billion and adjusted operating margins expanding 230 basis points to 33.5%. Analysts like Saiyi He (CMB International) and Matthew Hedberg (RBC Capital) maintained "Buy" ratings, with price targets of $1,180 and $1,200, respectively.

The selloff appears more tied to investor skepticism about ServiceNow's capital allocation. The $7 billion Armis acquisition-ServiceNow's largest to date-has raised questions about potential dilution and leverage. Yet, this move is not a panic play but a calculated step to embed cybersecurity into the company's AI-driven platform, addressing a critical gap in enterprise operations.

M&A Strategy: Building an AI Control Tower

ServiceNow's M&A strategy in 2025 is focused on creating a unified "AI Control Tower" for enterprises. The Armis acquisition complements prior purchases like Moveworks (conversational AI) and Veza (data governance), forming a cohesive ecosystem where security, AI governance, and workflow automation converge. By integrating Armis's continuous device visibility technology-covering operational technology (OT), medical equipment, and IoT sensors-ServiceNow is transforming security from a peripheral function into a core component of its platform.

This strategy aligns with the 2026 AI Tech M&A Wave, where platforms that embed security and governance into workflows are gaining competitive edges. For instance, Armis's real-time device intelligence enables automated incident response, compliance checks, and asset management, all triggered by security alerts. Such integration deepens customer stickiness, as enterprises become reliant on ServiceNow's end-to-end solutions.

AI Integration and Platform Stickiness

ServiceNow's AI-driven innovations are not just about efficiency-they're about redefining enterprise workflows. The company's AI Control Tower allows customers to automate repetitive tasks, optimize resource allocation, and enforce governance across hybrid IT environments. This is particularly valuable in regulated industries like healthcare and defense, where Armis's expertise in securing legacy infrastructure and high-value assets adds significant value.

Moreover, ServiceNow's U.S. federal contracts have surged, driven by demand for AI governance and cybersecurity solutions. The Armis acquisition strengthens this position, as federal agencies prioritize securing unmanaged devices and IoT endpoints. By addressing these pain points, ServiceNow is expanding into markets where competitors like Salesforce and Microsoft face steeper regulatory hurdles.

Financial Health and Capital Deployment

Critics argue that ServiceNow's aggressive M&A could strain its balance sheet. However, the company's financials tell a different story. As of December 2025, ServiceNow holds $9.7 billion in cash and investments, with a free cash flow margin of 34%. While the combined cost of Moveworks, Veza, and Armis may approach $11 billion, the company's strong cash generation capabilities suggest it can manage increased leverage without compromising long-term growth.

The planned five-for-one stock split, pending shareholder approval, further signals confidence in the company's trajectory. By increasing liquidity and accessibility, the split could attract a broader investor base, mitigating short-term volatility.

Analyst Sentiment and Long-Term Outlook

Despite the selloff, analyst sentiment remains overwhelmingly bullish. The average price target for ServiceNow is approximately $1,160, implying a 34% upside from current levels. Post-earnings price targets have even averaged $1,191, suggesting a potential 37.5% rise. These targets are underpinned by ServiceNow's revised 2025 subscription revenue guidance of $12.835 billion to $12.845 billion, reflecting robust demand for AI services.

The key question for investors is whether the selloff reflects a temporary correction or a fundamental re-rating. Given ServiceNow's strategic acquisitions, expanding margins, and leadership in AI governance, the former seems more likely. The Armis deal, in particular, positions ServiceNow to capitalize on the $100 billion AI infrastructure market, where platforms that integrate security and automation will dominate.

Conclusion

ServiceNow's selloff in late 2025 is a classic case of short-term volatility obscuring long-term value. The company's aggressive M&A strategy, particularly the Armis acquisition, is not a reckless gamble but a calculated move to build an AI-powered platform that addresses the most pressing challenges in enterprise software. With strong financials, expanding margins, and a clear vision for AI integration, ServiceNow is well-positioned to maintain its dominance in the AI era. For investors with a multi-year horizon, the current pullback offers a compelling opportunity to buy into a company that is redefining the future of work.