ServiceNow Shares Slide Despite Robust Quarterly Performance

ServiceNow US81762P1021

Investors delivered a harsh verdict on ServiceNow's latest financial update, sending the stock tumbling more than 8% in a single session. This sell-off occurred even as the enterprise software leader posted quarterly results that surpassed Wall Street's expectations for both revenue and profit. The market's focus, however, was squarely on the company's longer-term growth trajectory, with a 2026 subscription revenue forecast failing to justify its premium valuation in the eyes of many.

The company's financial metrics for the fourth quarter of 2025 were undeniably solid. ServiceNow reported revenue of $3.57 billion, a figure that exceeded consensus estimates of $3.53 billion and represented year-over-year growth of 20.5%. Earnings per share came in at $0.92, also topping analyst projections, which had ranged from $0.87 to $0.89.

Its crucial subscription business expanded by 21% to reach $3.47 billion, while current remaining performance obligations (cRPO) climbed 25%. Chief Executive Bill McDermott confirmed the company is on track to surpass $15 billion in total revenue this year.

The pivotal concern for shareholders emerged with the outlook for 2026. ServiceNow guided for subscription revenue growth of approximately 20%, implying an organic growth rate in the range of 18.5% to 19%. Analysis from KeyBanc suggested this pace may be insufficient to support the stock's elevated valuation multiples.

A Strategic Push into AI and Security

Amid the earnings release, ServiceNow announced significant strategic moves aimed at shaping its future. The company unveiled a new partnership with Anthropic. The integration of Anthropic's Claude AI models into the ServiceNow platform is intended to enhance AI agent capabilities and workflow automation for customers.

In a parallel and substantial transaction, ServiceNow agreed to acquire cybersecurity specialist Armis for $7.75 billion in an all-cash deal. This acquisition is strategically focused on bolstering the company's security offerings for operational technology (OT) and Internet of Things (IoT) environments.

Furthermore, in a move to return value to shareholders, the board of directors authorized a new $5 billion share repurchase program. An accelerated buyback of $2 billion is being executed immediately.

Analyst Community Adjusts Price Targets

The investment research community responded to the mixed report with a wave of price target reductions:

• KeyBanc made the most aggressive cut, slashing its target from $155 to $115.
• BMO Capital Markets adjusted its target down to $170 from $175, while maintaining an Outperform rating.
• JPMorgan reduced its target from $215 to $195.
• Canaccord Genuity lowered its target from $224 to $200.

The stock closed the session near $129. This reaction reflects a broader market reassessment of software sector valuations, particularly for companies with a heavy artificial intelligence focus where the speed of monetization is under intense scrutiny.

Robust Demand Meets Valuation Skepticism

Underlying business strength was evidenced by the signing of 244 deals with an annual contract value exceeding $1 million. Nonetheless, the market's forward-looking perspective is clear: the central question is how rapidly ServiceNow can convert its AI investments into tangible revenue streams. This concern was previewed in December when Wedbush removed the stock from its list of top AI picks, citing slower-than-expected monetization progress.

The quarterly figures confirm that ServiceNow continues to grow at a robust pace. However, for a stock commanding a premium price, "robust" may no longer be enough. The equity now faces the challenge of either accelerating growth to meet high expectations or undergoing a potential market-led re-rating.