3 Reasons to Hold ServiceNow Stock Despite a 42% Decline in 3 Months

ServiceNow’s NOW shares have plunged 41.9% over the past three months, significantly lagging the Zacks Computer and Technology sector’s 1.8% decline and the Financial- Miscellaneous Services industry’s 15.6% drop.

ServiceNow's recent decline reflects concerns about short-term growth, rising AI and cloud spending, and acquisition integration risks. Even with solid fundamentals, first-quarter subscription guidance headwinds and higher investment have made investors more careful about margins and execution, putting pressure on the stock.

NOW’s stock has also underperformed relative to competitors, including SAP SAP, Microsoft MSFT and Salesforce CRM. Over the same period, shares of SAP, Microsoft and Salesforce declined 19.3%, 20.8% and 20.9%, respectively.

SAP, Salesforce and Microsoft compete with ServiceNow by embedding service management and workflow automation into their larger enterprise platforms. SAP integrates these capabilities within its ERP ecosystem, Salesforce extends customer-centric workflows through its cloud platform, and Microsoft combines automation with Dynamics 365 and Power Platform.

NOW Three-Month Price Performance

Despite the recent sell-off, the key question is whether ServiceNow’s fundamentals support maintaining a hold stance. Let’s examine the underlying factors.

Rapid Adoption of AI-Native Products Boosts NOW

ServiceNow is experiencing increased adoption of its AI-native products, especially Now Assist and the AI Control Tower, demonstrating that AI is moving from experimentation to integrated workflow execution. Now Assist exceeded $600 million in ACV, with new ACV more than doubling year over year and a significant rise in contracts over $1 million. Customers are expanding deployments across various workflow areas, indicating confidence in AI-enhanced productivity, automation and service outcomes. Additionally, the rising adoption rate of the AI Control Tower further solidifies ServiceNow's leadership in managing and orchestrating enterprise AI initiatives.

The pace of adoption is translating into platform growth, with enterprises scaling assist entitlements based on proven returns. Many customers are increasing AI use to automate customer service and operations. Products like Workflow Data Fabric and CPQ are commonly bundled with Now Assist, strengthening adoption and platform stickiness. As AI projects shift from testing to full production, monetization is accelerating, supporting steady subscription growth.

NOW Benefits From an Expanding Partner Alliances

ServiceNow is leveraging a rapidly expanding partner ecosystem to accelerate enterprise AI adoption and strengthen interoperability. Deep integrations with Microsoft, OpenAI and Anthropic, helping enterprises deploy agent-driven workflows with strong oversight and protection. Partnerships with NTT DATA and hyperscalers further extend implementation reach and AI delivery capabilities, positioning ServiceNow as the orchestration layer that connects copilots, agents and enterprise data across environments.

Industry-focused alliances are also driving platform expansion. Collaborations with companies like Fiserv and Panasonic Avionics embed ServiceNow AI into sector-specific operational workflows, reinforcing real-world use cases and cross-platform value. These partnerships expand distribution, accelerate innovation and strengthen ServiceNow's position as a central hub for enterprise AI implementation.

ServiceNow’s Valuation Looks Appealing

ServiceNow’s valuation remains discounted relative to its industry, reflected in a forward 12-month P/S multiple of 6.48X compared with the 13.88X industry average. The gap between the company's valuation and the broader industry creates room for appreciation as fundamentals continue to support the business.

Price/Sales Ratio (F12M)

Even as ServiceNow delivers solid growth supported by AI and workflow adoption, its risk profile is becoming more visible. Investments in hyperscaler capacity and AI infrastructure pressure margins, while deployment mix transitions create temporary revenue headwinds. Integration of Moveworks, Armis and Veza adds execution demands. Elevated operating costs and macroeconomic or currency volatility may further temper margin expansion.

Technically, NOW shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.

NOW Trades Below the 50-Day and 200-Day SMAs

Conclusion

ServiceNow’s accelerating AI-native adoption, expanding partner ecosystem and discounted valuation reinforce its long-term growth outlook and platform stickiness. However, elevated AI spending, acquisition integration risks and weak technical momentum may pressure margins and investor sentiment in the near term. With meaningful growth opportunities offset by near-term pressures, it is sensible for investors to maintain a hold position for the time being.

ServiceNow currently has a Zacks Rank #3 (Hold). 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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