ServiceNow stock has fallen 12.8% so far in 2025 while the Nasdaq rose 22%.
After the business software company beat expectations and raised guidance Wednesday, the stock perked up. However, by the end of October, much of that gain had evaporated.
Does this represent a buying opportunity for investors? Although the stock fell throughout much of the year on fears of macroeconomic damage from the current administration’s economic policies and a high stock valuation, there are compelling reasons the shares could rise:
- Strong third quarter performance and prospects.
- Compelling growth in government contracts and artificial intelligence infused services.
- Pending stock split.
ServiceNow is pleased with its performance. “We are very, very excited about the results,” ServiceNow President and Chief Financial Officer Gina Mastantuono told me in an October 29 interview.
“ServiceNow is a durable, consistent, overperforming software company. With rule of 50 performance. We have achieved more than 20% revenue growth every fiscal year for the past decade,” she added.
Strong Third Quarter Performance And Prospects
The AI boom helped ServiceNow top third-quarter estimates and lift its guidance as it benefits from the AI boom. With an extra boost from the company’s announcement of a 5-for-1 stock split, shares rose 4% after Wednesday’s market close, according to CNBC.
Here are the key results:
- Third quarter 2025 revenue: $3.41 billion – 22% more than the previous year and $60 million more than the London Stock Exchange Group estimate, noted CNBC.
- Q3 subscription revenues: $3.3 billion – $40 million above the estimate from StreetAccount, wrote CNBC.
- Q3 adjusted earnings per share: $4.82 adjusted – 5 cents more than the LSEG consensus, reported CNBC
- Q3 net income: $502 million – a 16% increase from the previous year, CNBC noted.
- Q3 current remaining performance obligations: $11.35 billion – up 20.5% from the year before and $260 million above analyst forecasts, according to MarketWatch.
- Q4 subscription revenue guidance: $3.425 billion at the range midpoint, wrote CNBC.
- 2025 full year revenue guidance: $12.845 billion at the range midpoint – a $60 million increase from the previous quarter’s guidance, according to CNBC.
- 2025 and 2026 AI platform revenue: expected to exceed 2025 target of $500 million and is “on track to meet our 2026 goal of $1 billion,” Mastantuono told me.
ServiceNow is helping enterprises use AI. “Every enterprise in every industry is focused on AI as the innovation opportunity of our generation,” CEO Bill McDermott wrote in a release. The results are the “clearest demonstration” that businesses rely on ServiceNow for these capabilities, he added.
ServiceNow said its third quarter results and guidance beat expectations.”Revenue beat by 100 basis points, operating income beat by 300 basis points, and our free cash flow margin increased 50 basis points, Mastantuono told me. “If you execute with discipline, results follow,” she added.
“I am excited about raising our top line guidance and increasing our free cash flow margin guidance from 32% to 34%. We are achieving this because we are drinking our own champagne. Our business model is resiliency, scalability, and industry leading,” she concluded.
Growth In Government Contracts And AI-Powered Services
ServiceNow’s government contract revenue growth defied investor pessimism about the headwind of government uncertainty. In addition, ServiceNow provided evidence of customers getting value from the company’s AI-infused services.
For instance, in Q3 the company’s U.S. federal business grew more than 30%. “Whenever the government reopens, the administration’s continued focus on cost efficiency and modernization aligns directly with our strengths,” said Mastantuono, according to CNBC. “There was uncertainty due to DOGE and other factors, but the business continues to rock,” she said in our interview.
While many companies are not earning a return on their investment, according to an MIT NANDA study, some of the ones that are earning such a payback are ServiceNow customers. “We are helping companies achieve a return on AI,” Mastantuono added.
This return is coming from ServiceNow’s AI Control Tower – software to onboard, monitor, and manage AI agents — which is driving an increase in net new artificial intelligence ACV. ”We are offering large companies trust, governance, security, and real ROI built into the platform,” she said.
For example, Alta Beauty uses AI Control Tower free associates in 1,400 stores from manual tasks so they can focus on the customer experience. Astra Zeneca uses the product to help them achieve their goal of introducing 20 new medicines by 2030. “Our product reduces the time to do material requests from 30 minutes to seconds,” she concluded.
ServiceNow’s Pending Stock Split
Another potential positive for the stock is ServiceNow’s pending stock split. The reason? The much lower per share price – which would be about $184 a share at the October 31 price will “make our shares affordable for retail investors,” Mastantuono told me.
ServiceNow sees demand for its stock because these investors want a piece of the software company’s AI momentum. “We know that there are consumer investors, not just large institutional investors, that want a piece of our company, and we want to make it easy for them to be involved,” McDermott told MarketWatch.
Is ServiceNow Stock Overvalued?
Analysts say ServiceNow stock may be overvalued. Indeed, the stock trades at a forward price/earnings ratio of 54.69 — roughly 2.2 times the sector median premium of 25.22x. This represents a “significant premium to sector peers which may limit near-term upside,” according to SeekingAlpha.
What’s more ServiceNow faces competition – such as Microsoft, Oracle, and Salesforce – and sells its services at a high price. Should buyers become more price-sensitive, ServiceNow might lose customers or choose to lower prices.
How so? ServiceNow is “considerably more expensive than many competitors due to its complex features, opaque pricing, and high implementation costs,” according to SmartSuite, which found prices from public sources “ranging between $50,000 and $500,000 annually.”
ServiceNow says customers are paying more because they like the company’s hybrid pricing model which combines a “traditional subscription-based component with a consumption-based one for AI-powered services,” noted MarketWatch.
ServiceNow is bullish about its stock. “I think a lot of people are looking at the headlines today saying ‘wow, I’m seeing layoffs, I’m hearing CEOs saying they’re not getting their money out of their proof of concepts, and then ServiceNow is hiring,’ ” McDermott told MarketWatch. “ ‘They’re beating and raising. They’re splitting their stock.’ ”
Analysts see considerable upside in the stock. Wall Street’s average price target is $1,124.82 – implying ServiceNow stock could rise 22%, TipRanks noted.