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ServiceNow Drops 29% in a Month: Should You Hold or Fold the Stock?
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Key Takeaways
NOW shares fell 29% in a month, lagging the tech sector amid slowing backlog growth and AI concerns.
NOW expects Q4 cRPO growth of 18.5%, down from 21% in Q3, while rising costs and debt pressure profitability.
NOW AI net new ACV surged 65% in Q3, but premium valuation and acquisition risks warrant caution.
ServiceNow (NOW - Free Report) shares have dropped 29% in the past month, underperforming the broader Zacks Computer and Technology sector’s fall of 12.6%. The company’s shares have also lagged peers, including Oracle (ORCL - Free Report) , Salesforce (CRM - Free Report) and Microsoft (MSFT - Free Report) , shares of which have declined 14.1%, 8.7% and 28.5%, respectively, over the same time frame. NOW’s underperformance can be attributed to investor concerns over slowing near-term backlog growth, modest guidance increases, acquisition-related risks and uncertainty over the monetization of artificial intelligence (AI). Let’s delve deep to find out what investors should do with the NOW stock.
NOW Stock’s Price Performance
Image Source: Zacks Investment Research
NOW Stock Suffers From Modest Expectations
ServiceNow’s fourth-quarter 2026 current remaining performance obligations (cRPO) outlook has been disappointing. The company expects cRPO growth of 18.5% in constant currency (cc) compared with 21% in the third quarter of 2026. The projected slowdown has raised concerns about future subscription revenue growth. NOW attributed the deceleration to early renewals in the third quarter, a higher mix of on-premises public-sector contracts, deployment-related accounting adjustments and termination-for-convenience provisions that exclude certain backlog from cRPO.
ServiceNow raised its 2026 subscription revenue guidance by only $15 million at the midpoint, to $15.785 billion. This relatively small increase may have disappointed investors expecting a stronger outlook from the company’s accelerating AI business. NOW explained that its decision to include deployment expertise with certain large customer agreements is shifting some revenues from subscriptions to professional services. This reduced subscription revenue growth by approximately 25 basis points (bps) in the third quarter and is expected to create a 50-bps headwind in the fourth quarter.
ServiceNow’s expansion through acquisitions is another potential source of investor concern. The company’s Armis acquisition is expected to contribute approximately 175 bps to fourth-quarter subscription revenue growth in cc but reduce non-GAAP operating margin by approximately 75 bps. NOW’s growing exposure to cybersecurity also increases integration complexity as it combines acquired technologies with its broader AI platform.
NOW Faces Profitability and Debt Challenges
ServiceNow faces mounting profitability challenges due to higher infrastructure expenses and acquisition-related costs. In the third quarter of 2026, subscription cost of revenues increased 58% year over year to $1.05 billion, significantly outpacing subscription revenue growth of 21%. Consequently, GAAP subscription gross margin contracted to approximately 74% from 80% in the year-ago quarter. Higher third-party cloud expenses, employee costs and amortization of acquired intangible assets contributed to the deterioration. Sustained investment in AI infrastructure and cybersecurity offerings could continue to pressure profitability despite improving operating efficiencies.
The Zacks Consensus Estimate for NOW’s 2026 earnings has declined by 2.7% to $3.95 per share over the past 30 days and indicates 12.5% growth from 2025’s reported figure. The consensus mark for NOW’s fourth-quarter 2026 earnings estimate is currently pegged at $1.08 per share, down 6.1% over the past 30 days and suggests 17.4% growth over the figure reported in the year-ago quarter.
ServiceNow’s acquisition-led expansion increases financial and operational complexity. In 2026, the company acquired Armis for approximately $7.6 billion and Veza for roughly $1.2 billion, expanding into cyber-exposure management and identity security. These transactions have increased integration requirements, acquisition-related amortization and financing obligations. As of Sept. 30, 2026, ServiceNow had approximately $7.52 billion in short-term and long-term debt, compared with $1.49 billion at the end of 2025.
ServiceNow Stock Trades at a Premium
ServiceNow stock has a Value Score of C, which suggests a stretched valuation at this moment.
The stock is trading at a premium, with a forward 12-month price/sales of 5.50X, higher than the broader sector’s 4.93X, Salesforce’s 3.53X and Oracle’s 3.29X. However, NOW shares are trading below Microsoft’s P/S multiple of 9.38.
NOW Stock’s Valuation
Image Source: Zacks Investment Research
Growing AI Monetization Opportunity to Aid NOW’s Prospects
ServiceNow’s expanding AI portfolio represents a major long-term growth opportunity. In the third quarter of 2026, AI net new ACV increased 65% year over year, prompting management to raise its 2026 AI ACV target to at least $1.7 billion from the initial $1 billion target. The number of AI deals exceeding $1 million grew 4.5 times year over year, while agentic AI consumption in production increased more than 13 times on a year-to-date basis. Strong adoption of Now Assist, AI Control Tower, Autonomous Workforce and AI Specialists should support higher customer spending and create additional monetization opportunities across the platform.
Cybersecurity represents another important growth avenue for NOW. Integrating Armis’ cyber-asset intelligence and Veza’s identity-governance capabilities with ServiceNow Security Operations creates a broader platform spanning asset visibility, identity security, risk controls and automated responses. NOW’s strong partner base that includes NVIDIA, Microsoft, AWS and Accenture extends AI Control Tower and Agentic AI capabilities across major enterprise ecosystems, while collaborations with Experian, Lenovo, FedEx and TeamViewer broaden industry use cases.
Conclusion
ServiceNow’s expanding AI monetization opportunities, growing enterprise adoption and cybersecurity portfolio strengthen its long-term growth prospects. Strong demand for Now Assist and agentic AI solutions, supported by strategic partnerships, should drive subscription revenue growth and customer expansion. However, slowing cRPO growth, rising infrastructure costs, acquisition-related integration risks and increasing debt remain significant concerns. Downward earnings estimate revisions and a premium valuation further limit the stock’s near-term upside potential. Despite the recent sharp correction, investors should remain cautious and wait for clearer signs of accelerating backlog growth, improving profitability and sustained AI monetization before taking a position in NOW shares.
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ServiceNow Drops 29% in a Month: Should You Hold or Fold the Stock?
Key Takeaways
ServiceNow (NOW - Free Report) shares have dropped 29% in the past month, underperforming the broader Zacks Computer and Technology sector’s fall of 12.6%. The company’s shares have also lagged peers, including Oracle (ORCL - Free Report) , Salesforce (CRM - Free Report) and Microsoft (MSFT - Free Report) , shares of which have declined 14.1%, 8.7% and 28.5%, respectively, over the same time frame. NOW’s underperformance can be attributed to investor concerns over slowing near-term backlog growth, modest guidance increases, acquisition-related risks and uncertainty over the monetization of artificial intelligence (AI). Let’s delve deep to find out what investors should do with the NOW stock.
NOW Stock’s Price Performance
Image Source: Zacks Investment Research
NOW Stock Suffers From Modest Expectations
ServiceNow’s fourth-quarter 2026 current remaining performance obligations (cRPO) outlook has been disappointing. The company expects cRPO growth of 18.5% in constant currency (cc) compared with 21% in the third quarter of 2026. The projected slowdown has raised concerns about future subscription revenue growth. NOW attributed the deceleration to early renewals in the third quarter, a higher mix of on-premises public-sector contracts, deployment-related accounting adjustments and termination-for-convenience provisions that exclude certain backlog from cRPO.
ServiceNow raised its 2026 subscription revenue guidance by only $15 million at the midpoint, to $15.785 billion. This relatively small increase may have disappointed investors expecting a stronger outlook from the company’s accelerating AI business. NOW explained that its decision to include deployment expertise with certain large customer agreements is shifting some revenues from subscriptions to professional services. This reduced subscription revenue growth by approximately 25 basis points (bps) in the third quarter and is expected to create a 50-bps headwind in the fourth quarter.
ServiceNow’s expansion through acquisitions is another potential source of investor concern. The company’s Armis acquisition is expected to contribute approximately 175 bps to fourth-quarter subscription revenue growth in cc but reduce non-GAAP operating margin by approximately 75 bps. NOW’s growing exposure to cybersecurity also increases integration complexity as it combines acquired technologies with its broader AI platform.
NOW Faces Profitability and Debt Challenges
ServiceNow faces mounting profitability challenges due to higher infrastructure expenses and acquisition-related costs. In the third quarter of 2026, subscription cost of revenues increased 58% year over year to $1.05 billion, significantly outpacing subscription revenue growth of 21%. Consequently, GAAP subscription gross margin contracted to approximately 74% from 80% in the year-ago quarter. Higher third-party cloud expenses, employee costs and amortization of acquired intangible assets contributed to the deterioration. Sustained investment in AI infrastructure and cybersecurity offerings could continue to pressure profitability despite improving operating efficiencies.
The Zacks Consensus Estimate for NOW’s 2026 earnings has declined by 2.7% to $3.95 per share over the past 30 days and indicates 12.5% growth from 2025’s reported figure. The consensus mark for NOW’s fourth-quarter 2026 earnings estimate is currently pegged at $1.08 per share, down 6.1% over the past 30 days and suggests 17.4% growth over the figure reported in the year-ago quarter.
ServiceNow, Inc. Price and Consensus
ServiceNow, Inc. price-consensus-chart | ServiceNow, Inc. Quote
ServiceNow’s acquisition-led expansion increases financial and operational complexity. In 2026, the company acquired Armis for approximately $7.6 billion and Veza for roughly $1.2 billion, expanding into cyber-exposure management and identity security. These transactions have increased integration requirements, acquisition-related amortization and financing obligations. As of Sept. 30, 2026, ServiceNow had approximately $7.52 billion in short-term and long-term debt, compared with $1.49 billion at the end of 2025.
ServiceNow Stock Trades at a Premium
ServiceNow stock has a Value Score of C, which suggests a stretched valuation at this moment.
The stock is trading at a premium, with a forward 12-month price/sales of 5.50X, higher than the broader sector’s 4.93X, Salesforce’s 3.53X and Oracle’s 3.29X. However, NOW shares are trading below Microsoft’s P/S multiple of 9.38.
NOW Stock’s Valuation
Image Source: Zacks Investment Research
Growing AI Monetization Opportunity to Aid NOW’s Prospects
ServiceNow’s expanding AI portfolio represents a major long-term growth opportunity. In the third quarter of 2026, AI net new ACV increased 65% year over year, prompting management to raise its 2026 AI ACV target to at least $1.7 billion from the initial $1 billion target. The number of AI deals exceeding $1 million grew 4.5 times year over year, while agentic AI consumption in production increased more than 13 times on a year-to-date basis. Strong adoption of Now Assist, AI Control Tower, Autonomous Workforce and AI Specialists should support higher customer spending and create additional monetization opportunities across the platform.
Cybersecurity represents another important growth avenue for NOW. Integrating Armis’ cyber-asset intelligence and Veza’s identity-governance capabilities with ServiceNow Security Operations creates a broader platform spanning asset visibility, identity security, risk controls and automated responses. NOW’s strong partner base that includes NVIDIA, Microsoft, AWS and Accenture extends AI Control Tower and Agentic AI capabilities across major enterprise ecosystems, while collaborations with Experian, Lenovo, FedEx and TeamViewer broaden industry use cases.
Conclusion
ServiceNow’s expanding AI monetization opportunities, growing enterprise adoption and cybersecurity portfolio strengthen its long-term growth prospects. Strong demand for Now Assist and agentic AI solutions, supported by strategic partnerships, should drive subscription revenue growth and customer expansion. However, slowing cRPO growth, rising infrastructure costs, acquisition-related integration risks and increasing debt remain significant concerns. Downward earnings estimate revisions and a premium valuation further limit the stock’s near-term upside potential. Despite the recent sharp correction, investors should remain cautious and wait for clearer signs of accelerating backlog growth, improving profitability and sustained AI monetization before taking a position in NOW shares.
ServiceNow currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.