ServiceNow delivered a robust set of financial results for its fourth quarter and full fiscal year 2025, surpassing all growth expectations. However, investor reaction was negative, with the company’s stock declining. This divergence highlights a market environment where strong operational execution is being overshadowed by broader sector concerns, particularly regarding the valuation of traditional software firms in the age of artificial intelligence.
Sector-Wide Valuation Concerns Outweigh Strong Fundamentals
The recent sell-off in ServiceNow shares, which have lost approximately 40% of their value over the past twelve months, reflects a wider trend. Competitors such as Salesforce and Adobe are experiencing similar pressure. Investors are fundamentally reassessing the high valuations historically afforded to SaaS (Software as a Service) companies. The disruptive potential of generative AI is fueling fears that it could undermine the pricing power and long-term dominance of established software providers. For now, these macroeconomic and sector-specific anxieties appear to carry more weight with the market than even solid quarterly earnings and raised guidance.
Operational Metrics Exceed Expectations
The company’s operational strength is undeniable. For Q4, subscription revenue climbed 21% year-over-year to $3.466 billion. Total revenue reached $3.57 billion, exceeding analyst consensus estimates of $3.53 billion. Adjusted earnings per share also beat Wall Street forecasts, coming in at $0.92 against expectations of $0.88.
A critical forward-looking indicator, Remaining Performance Obligations (RPO), which represents future revenue under contract, surged 25% to $12.85 billion. Furthermore, ServiceNow raised its outlook for 2026, projecting subscription revenue up to $15.57 billion, a figure that sits above current consensus estimates.
Should investors sell immediately? Or is it worth buying ServiceNow?
Strategic AI Push and Capital Return
A key driver of growth is the company’s focused investment in artificial intelligence. The value of new annual contracts for its AI product “Now Assist” doubled in the fourth quarter. This initiative is bolstered by new strategic partnerships with industry heavyweights Anthropic and OpenAI, announced in late January. These collaborations aim to integrate advanced large language models directly into the ServiceNow platform.
In a move designed to bolster shareholder confidence, the company’s board authorized an additional $5 billion share repurchase program. An accelerated buyback of $2 billion is slated to begin imminently.
Despite these strong foundational elements and strategic initiatives, ServiceNow equity remains under pressure. The market is currently grappling with a significant sector rerating, where stellar company-specific performance is being muted by overarching questions about the future competitive landscape shaped by AI.
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