New ServiceNow Price Target as Pressure Mounts

We are leading off our comments about Wednesday night’s earnings reports for several Portfolio holdings with ServiceNow (NOW) .

As you can likely guess, the reason is that those shares are under the greatest amount of pressure on Thursday morning, in part due to a cavalcade of price target cuts. However, reductions still land between $175 and $195 for the most part, and they come with Wall Street remaining bullish on NOW shares with Buy or Outperform ratings.

Before we dig into ServiceNow’s results and guidance, the backdrop coming into Wednesday night’s report was concern that generative AI would pressure enterprise software companies.

Given the pressure we’ve seen on software stocks in general, those companies would need to deliver an upside surprise in the form of bookings, remaining performance obligations (RPOs) and guidance to push back on that concern. That gets to our earlier, more general comment coming into the current earnings season that upside surprises for quarterly results and guidance would likely be needed to lift stocks higher, and that in-line results or misses would weigh on a company’s shares.

With that said, what did we see from ServiceNow?

The company posted December quarter EPS of $0.92, a $0.03 per share beat on revenue that rose more than 20% year over year to $3.57 billion, beating expectations by around $40 million. We’ll grant you that wasn’t the biggest beat, but subscription revenue, the bulk of ServiceNow’s revenue stream, climbed 21% year over year to $3.47 billion.

We’ll spare you from our regurgitating why we focus on RPOs and simply call out that ServiceNow’s current RPOs climbed 25% year over year to $12.85 billion while total RPOs grew 26.5% to $28.2 billion. What those year-over-year figures don’t reveal is the 16.5% sequential increase in total RPOs compared to Q3 2025, led by the almost 20% jump in non-current RPOs. And yes, those year-over-year figures are also way faster than the 2% increase reported by IBM (IBM) for its December quarter backlog.

What those figures tell us is that the concern over ServiceNow’s lunch being eaten by generative AI isn’t the case. The same figures also provide ample coverage for management’s 2026 subscription revenue guidance of $15.5 billion, up more than 20% year over year.

The bottom line here is that, as good as those figures and metrics were, they were not in the same league as Meta’s (META) upside surprises reported last night that have the shares flying on Friday morning. But they also don’t warrant closing the door on NOW shares, especially when the company upsized its share repurchase program by $5 billion with an expedited $2 billion coming “imminently.”

That should help ServiceNow shares find their footing in the coming days, but between now and then, NOW shares are going to land back in an oversold condition. That is reason enough for us not to contemplate exiting the shares near-term, even if the shares temporarily flirt with our panic point at $118. As we see it, those RPO metrics and guidance confirm the company’s story is intact.

However, for NOW shares to start working again, the company will need to further overcome the market’s concerns about generative AI. This means it will take at least another quarter of continued RPO growth with further gains for its AI-facing business. In the December quarter, that Now Assist business doubled year over year, surpassing $600 million in average contract value, and the company targets at least $1 billion for this year. Given recent relationship announcements with Anthropic, OpenAI and others, that target is likely to prove conservative.

In the past, we’ve seen the market sentiment weigh on and at times restrain a company’s stock, only to see it rebound and push higher as the company continued to execute. With AI adoption and usage rising in the enterprise and companies needing to overcome the data silo problem, we will stay the course with NOW shares. If we see NOW shares land deep in oversold territory again, we may nibble on some shares to improve our cost basis.

Near term, NOW will be a "show me" story, and for that reason, we are dialing back our price target to $185. Normally, that would lead us to downgrade NOW to a Two rating from One, but given where the shares are and the oversold condition they will land in, we’ll keep our One rating intact.

We will continue to track program wins and quarterly RPO figures closely. Should we see those levels decline two quarters in a row, that would be a warning sign we would act on.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long NOW.