ServiceNow Stock: Buy After 50% Plunge? Our Take.
💡 Key Takeaway
ServiceNow's strong AI monetization and consumption-based model make it a potential buy, but its valuation remains high, warranting only a small position.
ServiceNow Stock Halved Amid AI Fears
ServiceNow (NOW) shares have fallen roughly 50% from their 52-week high of $211.48, now trading around $105. The sell-off was driven by market fears that artificial intelligence would disrupt the software industry, allowing customers to replace expensive subscriptions with AI agents. However, the stock has bounced nearly 30% off its lows as those concerns have eased.
The company's first-quarter 2026 results showed little sign of disruption. Subscription revenue rose 22% year over year to $3.67 billion, and current remaining performance obligations (cRPO) increased 22.5% to $12.64 billion. Notably, ServiceNow closed 16 deals worth over $5 million in net new annual contract value, up nearly 80% from a year earlier.
AI is clearly a tailwind, not a threat. Now Assist, ServiceNow's generative AI suite, is on track to reach about $1.5 billion in annual contract value in 2026, well above the original $1 billion target. Customers spending more than $1 million annually on Now Assist grew over 130% year over year.
Structurally, the AI-disruption worry may be overblown. About half of ServiceNow's net new business comes from consumption-based pricing, not user seats. When customers pay per workflow, more automation can drive higher usage. In January, ServiceNow signed a multi-year agreement with OpenAI, integrating its models into its platform.
Despite the sharp drop, valuation remains a concern. The stock trades at a forward P/E of 24 and a price-to-sales ratio of 7. While compressed, these multiples are not cheap for a business that is gradually slowing from high-20s growth to around 20%. The article suggests a small position for risk-tolerant investors.
Why This Matters for Investors
ServiceNow's story is a test case for whether AI will disrupt or empower enterprise software. If the company can continue monetizing AI through Now Assist and consumption models, it may emerge as a long-term winner. The strong Q1 results and guidance for 20%+ subscription revenue growth in 2026 suggest the business is resilient.
However, the high valuation (24x forward P/E) leaves little room for error. Any renewed AI scare could push the stock lower again. Investors should watch cRPO growth and Now Assist adoption as key leading indicators. If those trends hold, the stock could re-rate higher; if they slow, further downside is possible.
This news also impacts the broader software sector. If ServiceNow can successfully navigate AI disruption, it could support valuations for similar companies. Conversely, if the recovery falters, it may signal deeper trouble for enterprise software names.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
ServiceNow is a cautiously buy only with a small position, given its AI tailwinds but elevated valuation and lingering macro risks.
The company's AI suite is exceeding expectations and its consumption-based model reduces disruption risk. However, the forward P/E of 24 and P/S of 7 leave limited upside if growth slows or AI fears return.
What This Means for Me
