Shares of enterprise workflow software specialist ServiceNow (NOW 2.46%) have been crushed in early 2026. A pullback like this can create opportunities for investors. But not every sell-off is an overreaction, so investors should look at the company closely relative to its stock's valuation to see whether it's an opportunity.
In ServiceNow's case, the underlying business is still putting up spectacular numbers. But has the stock's valuation come down enough to make it a buy, especially given the fast-changing nature of software in an era of AI (artificial intelligence)?
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Rapid growth
ServiceNow's fourth-quarter results showed a business that is still compounding at a high rate. Its subscription revenue was $3.47 billion in Q4, up 21% year over year.
Even better, the company's current remaining performance obligations (cRPO), which it defines as contract revenue expected to be recognized in the next 12 months, climbed to $12.85 billion, up 25% year over year.
Management also pointed to strength in larger deals. The company said it had 244 deals over $1 million in net new annual contract value during the quarter, up 40% year over year.
Demand trends at ServiceNow, therefore, don't show any signs of AI disrupting its business. If anything, it seems to be helping.
The company's outlook is impressive, too. For 2026, ServiceNow guided for subscription revenue of about $15.5 billion, with growth around 20% on a constant-currency basis.
Is AI a catalyst, a threat, or both?
ServiceNow is clearly leaning into AI. In fact, the company called itself "the AI control tower for business reinvention" in its most recent earnings release.
And management was particularly upbeat about ServiceNow's AI positioning during its earnings call.
"We are a platform company executing a long-term platform strategy where AI agents and workflows are harmonious and synonymous, creating sustained advantage, not short-term wins," explained CEO Bill McDermott in the company's fourth-quarter earnings call. "This makes ServiceNow's AI platform more strategically relevant today than ever."
Its success with AI is showing up in its business. Now Assist, ServiceNow's embedded generative AI experience for its Now Platform, saw net new annual contract value in Q4 more than double year over year.
In addition, ServiceNow announced in its earnings report on Jan. 28 that it has deployed Anthropic's generative AI model, Claude, as part of ServiceNow workflows to more than 29,000 employees.
And management is putting its money where its mouth is. ServiceNow repurchased about $597 million of stock in Q4 and said its board authorized an additional $5 billion in repurchases. Management also said in the Jan. 28 update that it had planned an imminent $2 billion accelerated share repurchase.
NYSE: NOW
Key Data Points
So where does that leave valuation?
ServiceNow is an exceptional business. Still, uncertainty surrounding AI merits some skepticism toward the stock, even if it is a catalyst for the company for now.
After this sell-off, ServiceNow's price-to-sales ratio is around 8, and its forward price-to-earnings ratio, which measures a stock's valuation as a multiple of analysts' consensus earnings-per-share forecast, is 24.
While ServiceNow's stock no longer looks expensive after its recent sell-off, it doesn't look like a clear buy either. Yes, ServiceNow is a great business, and the buyback is notable. But the stock is still priced for a world in which high growth stays high for the foreseeable future. And while sustained growth like this could be ServiceNow's reality, the fast-changing nature of the AI era introduces uncertainty that arguably merits a discount before the stock is worth buying.
While I'm personally not ready to call ServiceNow stock a buy yet, it may be getting close to a price I'd consider buying at, assuming the company continues to benefit from AI as a catalyst rather than a headwind.
