ServiceNow Drops 23% Year to Date: Time to Hold the Stock or Fold?

NOW Stock’s Price Performance

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NOW’s Prospects Suffer From Stiff Competition

ServiceNow is facing stiff competition from Microsoft, Oracle and Salesforce as these players are investing significantly to deliver enterprise AI agents, workflow orchestration, governance, security, AI copilots and enterprise data integration. 

Microsoft has rapidly become one of the biggest competitive threats in enterprise AI. The company owns virtually every layer of the enterprise AI stack, from Azure infrastructure and AI models to Microsoft 365, Dynamics365, GitHub Copilot and security products. Azure cloud platform closed fiscal 2026 with annual revenues surpassing $100 billion for the first time. 

Oracle’s ability to combine infrastructure, databases, enterprise applications and AI creates a compelling alternative for large enterprises modernizing their software stack. In the fourth quarter of fiscal 2026, Cloud Infrastructure revenues jumped 93% year over year, and cloud applications grew double digits. 

Salesforce has significantly accelerated Agentforce adoption with annual recurring revenues exceeding $1 billion. As Salesforce expands AI beyond CRM into enterprise workflow automation, competitive overlap with ServiceNow is increasing. Headless 360 is allowing Salesforce services to operate across multiple AI surfaces.

Can Growing AI Monetization Opportunity Help NOW Recover?

ServiceNow is expected to benefit from the growing AI monetization opportunity. In the second quarter of 2026, AI Annual Contract Value (ACV) exceeded $1 billion, and management remains confident of surpassing $1.5 billion AI ACV by year-end. Moreover, customers deploying agentic AI in production increased ninefold over the past nine months, suggesting AI is moving from pilot programs into meaningful production deployments.

NOW’s prospects are expected to benefit from healthy enterprise demand. In the second quarter of 2026, subscription revenues grew 24.5% year over year. Current Remaining Performance Obligations (cRPO) reached $13.20 billion while RPO reached $29 billion. cRPO, or contracted revenues expected to be recognized within 12 months, grew 21% year over year.

NOW recorded 123 transactions exceeding $1 million in net new ACV, up nearly 40% year over year. The company ended the quarter with 658 customers generating more than $5 million in annual contract value, an increase of roughly 23%. These metrics indicate enterprise customers continue making long-term commitments, which bodes well for NOW.

ServiceNow is increasingly positioning AI Control Tower as the enterprise governance layer for AI agents regardless of underlying models. The company aims to become the orchestration and governance platform sitting above enterprise AI deployments, a strategy that could benefit as enterprises adopt multiple AI models across departments. The company’s security business has surpassed $1 billion in annual revenues and is among the fastest-growing cybersecurity businesses in the enterprise software market. The acquisitions of Armis and Veza expand ServiceNow’s capabilities in AI identity governance, cyber risk, exposure management and asset visibility.

ServiceNow reiterated its long-term objectives of hitting more than $30 billion in subscription revenues by 2030. The company expects AI to contribute roughly 30% of ACV.

NOW’s Earnings Estimate Revision Shows Downward Trend

The Zacks Consensus Estimate for NOW’s 2026 earnings has declined 6 cents to $4.07 per share over the past 30 days and indicates 15.95% growth from 2025’s reported figure. The consensus mark for NOW’s third-quarter 2026 earnings estimate is currently pegged at $1.03 per share, down four cents over the past 30 days and suggests 7.29% growth over the figure reported in the year-ago quarter.

The Zacks Consensus Estimate for NOW’s 2026 revenues is pegged at $16.20 billion and indicates 22.02% growth from 2025’s reported figure. The consensus mark for NOW’s third-quarter 2026 revenues is currently pegged at $4.10 billion, suggesting 20.27% growth over the figure reported in the year-ago quarter.

ServiceNow Stock Trades at a Premium

ServiceNow stock has a Value Score of D, which suggests a stretched valuation at this moment.

The stock is trading at a premium, with a forward 12-month price/sales of 6.79X, higher than the broader sector’s 6.65X, Salesforce’s 3.24X and Oracle’s 4.34X. However, NOW shares are trading below Microsoft’s P/S multiple of 9.25.

NOW Stock’s Valuation

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Conclusion

ServiceNow continues to post strong subscription growth driven by robust enterprise demand and accelerating AI adoption. However, the company’s strong execution has been overshadowed by investor concerns that AI leaders such as Microsoft, Oracle and Salesforce are rapidly expanding into workflow automation, AI agents and enterprise governance – areas that have historically differentiated ServiceNow. This, along with a stretched valuation, makes the stock a risky bargain for investors despite the 23% YTD dip.

ServiceNow currently has a Zacks Rank #4 (Sell), which implies that investors should avoid the stock for the time being. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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