ServiceNow's AI Momentum vs. Valuation Concerns: What's Really Driving NOW Stock Down 30%?

ServiceNow [NOW] stock has retreated 29.9% over the past year, significantly lagging behind the broader computer and technology sector’s 25.1% gains. What’s causing this disconnect? A closer look reveals that while the company continues to strengthen its market position through aggressive acquisitions and AI innovation, investors remain skeptical due to macroeconomic headwinds and stretched valuations.

The Numbers Tell a Cautious Story

The company’s 2025 guidance paints a mixed picture. Subscription revenue is projected between $12.835 billion and $12.845 billion, representing 20% growth on a constant currency basis—solid, but noticeably slower than 2024’s 23% growth rate. This deceleration reflects the impact of tightening federal agency budgets, which has become a constraint on subscription-driven growth models across the enterprise software space.

On the valuation front, NOW trades at a forward 12-month price-to-sales ratio of 9.77X, compared to the sector average of 7.42X. This premium positioning, combined with a Value Score of F, suggests the stock is pricing in significant future growth expectations. Technically, shares are trading below both the 50-day and 200-day moving averages, signaling continued bearish momentum.

Where ServiceNow’s Real Growth Engine Lies

Despite valuation pressures, the company’s operational trajectory tells a different story. ServiceNow’s AI Platform is becoming a legitimate competitive advantage, with AI products projected to generate over $0.5 billion in Annual Contract Value (ACV) this year, on track to hit $1 billion by 2026.

The company’s workflow solutions spanning technology, ITSM, ITOM, ITAM, and security continue gaining enterprise adoption. More importantly, ServiceNow has assembled a formidable ecosystem through strategic integrations. Collaborations with leading cloud and infrastructure providers have enhanced the AI Platform’s capabilities, introducing advanced reasoning and multi-modal features that enterprises increasingly demand.

The design-to-execution workflow partnerships are also creating new value propositions, helping enterprises bridge the gap between creative intent and enterprise governance. These integrations are positioning ServiceNow as a unified platform for enterprise AI orchestration and control.

Acquisition Strategy Reshaping the Portfolio

ServiceNow’s 2025 acquisition spree has been transformative. The company acquired data governance specialists, AI-powered configuration solutions providers, and intelligent workflow platforms, significantly expanding its serviceable market. The Moveworks integration combined agentic AI with intelligent workflows, while security-focused acquisitions strengthened the company’s identity governance and cyber exposure management capabilities.

A notable $7.75 billion investment in cyber-physical security demonstrates management’s commitment to addressing critical infrastructure protection across IT, operational technology, and medical device environments—a growing concern for governments and enterprises worldwide.

Earnings Visibility and 2026 Outlook

Fourth-quarter 2025 earnings are estimated at 87 cents per share (up 19.2% year-over-year), while full-year 2025 earnings are consensus-estimated at $3.46 per share, representing 24.5% growth from 2024. More encouraging, 2026 earnings estimates stand at $4.04 per share, up from the previous estimate and implying 16.6% sequential growth.

The Bottom Line

ServiceNow faces a classic growth-stage dilemma: transformative business expansion and technological leadership versus near-term valuation and macroeconomic uncertainty. The expanding acquisition portfolio, growing workflow adoption, and strategic ecosystem positions suggest the groundwork for accelerating 2026 growth. However, the combination of stretched valuations and a constrained enterprise software spending environment presents near-term headwinds.

The current market sentiment reflects this tension—neither dismissing the company’s AI momentum nor fully endorsing its premium valuation. Investors seeking exposure may benefit from waiting for a more attractive entry point, particularly as management demonstrates whether it can convert expanded AI capabilities into market share gains and margin expansion.