ServiceNow Dips 26% Year to Date: Hold or Fold the NOW Stock?

ServiceNow NOW shares have plunged 25.9% year to date, underperforming both the Zacks Computer & Technology sector and the Zacks Computers – IT Services industry’s decline of 14.4% and 18.9%, respectively.

NOW shares have suffered from a worsening macroeconomic environment following U.S. President Donald Trump’s decision to levy tariffs on trading partners, including China and Mexico. The company’s federal business is expected to suffer from DOGE related issues. ServiceNow expects unfavorable forex impact of roughly $175 million for 2025 and back-end loaded federal business is expected to hurt the growth rate.

ServiceNow’s strategy to accelerate the adoption of its Agentic AI by foregoing immediate revenues is expected to affect the subscription revenue growth rate in 2025.

NOW Stock Performance

So, what should investors do with NOW stock? Let’s dig deep to find out.

NOW’s Long-Term Prospects Benefit From a Strong Portfolio

ServiceNow has strengthened its portfolio with the launch of the Yokohama platform. The update brings new AI agents across varied domains, including CRM, HR and IT, delivering enhanced productivity as well as smoother and smarter functioning of workflows. The Yokohama platform update is expected to help ServiceNow continue winning clients. ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. A rich partner base that includes the likes of Alphabet GOOGL, Amazon, Microsoft and NVIDIA NVDA is noteworthy. 

In January, ServiceNow and Alphabet’s Google Cloud expanded their partnership, under which the former will bring its Now Platform and a full suite of workflows to customers on Google Cloud Marketplace. ServiceNow will also make its Customer Relationship Management, IT Service Management and Security Incident Response solutions available on Google Distributed Cloud.

NVIDIA and NOW collaborated to launch AI agents for the telecom industry. The AI agents were built with NVIDIA AI Enterprise software and the AI platform NVIDIA DGX Cloud. Last month, ServiceNow expanded its partnership with NVIDIA to enhance agentic AI by integrating NVIDIA Llama Nemotron reasoning models and AI agent evaluation tools into the ServiceNow Platform for optimized business transformation.

DXC Technology DXC and ServiceNow have collaborated to introduce DXC Assure BPM (Business Process Management), which combines DXC Technology’s insurance expertise and scale with ServiceNow’s single platform and data model.

ServiceNow has been actively pursuing acquisitions this year. Early this month, the company announced plans to buy ServiceNow announced its plan to acquire Logik.ai, a leading provider of AI-powered Configure, Price, Quote solutions. In late February, NOW announced the acquisition of the Quality 360 solution from Advania to enhance its strength in the manufacturing industry. The buyout of Moveworks boosts NOW’s agentic AI offerings.

NOW’s Q1 Guidance Reflects Unfavorable Forex

For the first quarter of 2025, subscription revenues are projected between $2.995 billion and $3 billion, suggesting an improvement of 18.5-19% year over year on a GAAP basis. At cc, subscription revenues are expected to grow in the 19.5-20% range. Unfavorable forex is expected to hurt revenues by $40 million.

Sequentially, these figures imply modest revenue growth. Subscription revenues improved 21.2% year over year, on a reported basis, to $2.866 billion in the fourth quarter of 2024. On a cc basis, revenues increased 21% to $2.859 billion. 

For 2025, NOW expects subscription revenues to be $12.635-$12.675 billion, which suggests a rise of 18.5% to 19% from 2024 on a GAAP basis and 19.5% to 20% on a non-GAAP basis.

NOW’s Earnings Estimate Revision Shows Downward Trend

The Zacks Consensus Estimate for 2025 earnings is pegged at $16.23 per share, down by a penny over the past 30 days, indicating a 16.59% increase over 2024’s reported figure.

NOW’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.02%.
 

ServiceNow, Inc. Stock Price and Consensus

ServiceNow, Inc. price-consensus-chart | ServiceNow, Inc. Quote

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The consensus mark for 2025 revenues is pegged at $13 billion, suggesting growth of 18.39% over 2024’s reported figure.

ServiceNow Stock: Hold or Fold?

ServiceNow stock is overvalued, as suggested by the Value Score of F.

In terms of the forward 12-month Price/Sales, NOW is trading at 11.86X, higher than the sector’s 5.34X.

Price/Sales Ratio (Forward 12 Months)

Technically, ServiceNow stock is displaying a bearish trend as it is trading below both the 200-day and the 50-day moving averages.

NOW Trades Below 50-day & 200-day SMA

ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its clientele, boosting subscription revenues. However, unfavorable forex amid a challenging macroeconomic environment is a concern. NOW stock’s stretched valuation makes the stock unattractive for value investors.

ServiceNow currently has a Zacks Rank #4 (Sell), which implies that investors should stay away from 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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