Key Takeaways
- ServiceNow (NOW) stock plunged 34% in the week ended October 30, closing at $105.12 after weaker backlog guidance reignited AI disruption concerns.
- Salesforce (CRM) also faced selling pressure, although its latest reported cRPO growth accelerated to 14%, offering a useful enterprise software comparison.
- Morgan Stanley, Wells Fargo, and UBS reduced their ServiceNow price targets by approximately 7% to 11%, considerably less than the stock’s decline.
- TIKR’s October 30 consensus estimates show 2027 normalized EPS falling 4% to $4.80, suggesting valuation compression drove much of the sell-off.
What Happened?
ServiceNow (NOW) stock fell approximately 34% between October 23 and October 30, declining from $158.96 to $105.12, with most of the losses occurring after its third-quarter earnings announcement.
Shares plunged nearly 27% on October 29 as investors reacted to slower backlog growth and concerns that artificial intelligence could disrupt traditional enterprise software spending.
ServiceNow reported third-quarter revenue of $4.11 billion, up 20.5% year over year, while adjusted EPS of $1.00 missed Wall Street’s $1.02 consensus estimate.
Current remaining performance obligations (cRPO) grew 21% in constant currency, but management guided for 18.5% growth in the fourth quarter.
That slowdown overshadowed stronger results, including an increase in ServiceNow’s 2026 AI annual contract value target to $1.7 billion.
CEO Bill McDermott described the quarter as “the inflection point for ServiceNow,” highlighting the company’s expanding AI opportunities.
CFO Gina Mastantuono explained that early renewals, public-sector contract structures, and cancellation provisions contributed to the softer backlog outlook, as discussed in TIKR’s ServiceNow earnings analysis.
Salesforce also faced AI-related selling pressure, although its cRPO growth accelerated to 14% in its quarter ended July 31. The contrast suggests enterprise software companies may be experiencing different demand trends, making ServiceNow’s upcoming backlog results especially important.
Is ServiceNow Stock Undervalued or Overvalued?
ServiceNow appears undervalued following its sharp sell-off, although weaker backlog growth creates uncertainty around future earnings.
TIKR’s October 30 estimates project normalized EPS of $3.95 in 2026, $4.80 in 2027, and $5.89 in 2028.
Although the 2027 forecast declined 4% from $5.00, normalized earnings are still expected to grow approximately 19% annually between 2025 and 2028.
ServiceNow’s forward P/E recovered from approximately 20x in April to nearly 35x by October 22, compared with its five-year average of 53x.
Shares also gained 42% between June 30 and October 12 while forward earnings estimates increased just 4%, leaving the stock vulnerable to disappointing news.
Using ServiceNow’s October 22 forward P/E and adjusting for the subsequent share-price decline and lower earnings estimates suggests a forward multiple of approximately 23x to 24x as of October 30.
Several major analysts cut their price targets by much less than ServiceNow’s 34% decline.
Morgan Stanley lowered its target from $180 to $160, Wells Fargo reduced its target from $190 to $175, and UBS trimmed its target from $150 to $140.
Morgan Stanley and Wells Fargo maintained Overweight ratings, while UBS retained Neutral. Even UBS’s $140 target implied approximately 33% upside from the October 30 closing price.
ServiceNow’s consensus target fell from approximately $229 to $157 ahead of its third-quarter report, before the latest analyst revisions.
However, UBS warned that Wall Street’s 2027 growth expectations may be too optimistic. Slower backlog growth could pressure future revenue if AI demand fails to offset traditional software spending challenges.
ServiceNow appears undervalued at an estimated 23x to 24x forward earnings if its projected growth holds. Wall Street’s relatively modest earnings revisions suggest the 34% sell-off primarily reflected valuation compression. However, further slowing in backlog growth could justify a lower multiple.
So what is ServiceNow stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
