Can Workflow Adoption Drive NOW Stock in 2026 Post 25% Drop?

Core Insights - ServiceNow (NOW) shares have decreased by 25.4% over the past year, underperforming the Zacks Computer and Technology sector's growth of 25.4% and the Zacks Computers IT Services industry's decline of 19.2% [1] - The underperformance is attributed to a challenging macroeconomic environment and a slowdown in subscription revenue growth [1] - The company's fourth-quarter 2025 guidance indicates tightening budgets from U.S. federal agencies, which is expected to negatively impact subscription revenues [1] Subscription Revenue Guidance - ServiceNow has raised its 2025 subscription revenue guidance to between $12.835 billion and $12.845 billion, indicating a 20% growth on a non-GAAP constant currency basis and 20.5% on a reported basis compared to 2024 [2] - This growth rate is slower than the 23% subscription revenue growth rate achieved in 2024 [2] - Subscription revenues, which account for 97% of total revenues, are benefiting from increasing demand for its workflows [2] AI and Workflow Adoption - ServiceNow's workflows, including various IT and business functions, are gaining traction, particularly with the ServiceNow AI Platform [6] - The volume of AI Control Tower deals has more than quadrupled sequentially in Q3 2025, indicating strong demand for AI products [6] - AI product adoption is projected to exceed $0.5 billion in Annual Contract Value (ACV) in 2025, with a target of reaching $1 billion in 2026 [6][7] Strategic Acquisitions - The acquisition of Veza enhances ServiceNow's security and risk portfolios by expanding into identity security, which helps enterprises manage access to sensitive data [8][9] - Veza's capabilities will integrate with ServiceNow's workflows and AI, improving governance over AI agents [9] Partner Ecosystem - ServiceNow's expanding partner base includes major companies like NVIDIA, Microsoft, and Figma, which enhances its enterprise AI and workflow integrations [10] - The partnership with NVIDIA has led to the development of Apriel 2.0, aimed at improving AI reasoning and capabilities for enterprises [10] - Collaborations with Microsoft are focused on providing seamless orchestration and governance across AI agents and workflows [11] Earnings Estimates - The Zacks Consensus Estimate for NOW's Q4 2025 earnings is $4.35 per share, reflecting an 18.53% growth compared to the previous year, despite a recent downward revision [13] - For 2025, the earnings estimate is $17.28 per share, indicating a 24.14% growth over 2024, while the 2026 estimate is $20.15, suggesting a 16.57% growth over 2025 [14] Valuation Concerns - ServiceNow stock has a Value Score of F, indicating a stretched valuation, trading at a forward price/sales ratio of 11.28X compared to the sector's 6.75X [15] - The stock is currently trading below both the 50-day and 200-day moving averages, suggesting a bearish trend [18]