ServiceNow shares have tumbled roughly 43% so far this year, trading around $88 as of Tuesday, after investors soured on software names and worried that artificial intelligence could reduce demand for the company's workflow automation products.
Oppenheimer analyst Brian Schwartz challenges that interpretation, arguing that ServiceNow may instead be positioned to gain from corporate AI adoption. While Schwartz left his rating at Outperform, he trimmed his price target to $130 from $175, attributing the reduction to lower valuation multiples across the software sector rather than company-specific deterioration.
Schwartz's estimates call for ServiceNow to report first-quarter revenue of $3.74 billion, about 21% higher than the same quarter a year earlier, and pro forma earnings of $0.96 per share. He wrote that his "research mosaic" around demand activity, AI momentum, performance, and execution was modestly positive for ServiceNow's business in the quarter, and that this should lead to some upside versus consensus estimates.
On the company's backlog and forward-looking metrics, Oppenheimer calculates that federal government obligations fell about 72% year-over-year in the quarter to roughly $48 million, a figure that is less than half the three-year seasonal average of $99 million. Schwartz pointed out that this decline reflects, in part, a partial government shutdown and a difficult year-ago comparison, but he emphasized that the drop nonetheless acts as a meaningful headwind to ServiceNow's Current Remaining Performance Obligations, or cRPO - a closely watched indicator of future revenue.
Industry checks conducted by Oppenheimer showed a mixed picture. Contacts flagged a pullback in big-deal activity and weakness in the public sector, which dampened prospects for near-term contract signings. Offsetting those concerns, the same conversations found "accelerating usage growth and expansion activity for ServiceNow's AI business," according to Schwartz.
Schwartz acknowledged that AI disruption fears could leave the company viewed as a "show-me stock" following its earnings report. Still, he argued that sentiment has reached depressed levels with the stock down about 43% year-to-date, creating an appealing risk-reward trade for investors with a long-term horizon.
Looking further ahead, the analyst expects ServiceNow to become the first enterprise software company to derive more than 10% of revenue from AI-related offerings, likely by the fourth quarter of 2026. He said achieving that milestone would help re-establish ServiceNow as an AI beneficiary and could support a re-rating of its valuation multiple.
In summary, Oppenheimer's view blends caution on near-term demand dynamics - particularly in public-sector procurement and in large deal activity - with optimism about the company's AI-driven usage and potential revenue mix shifts that could materialize over time.
Key points
- ServiceNow stock has fallen about 43% year-to-date and traded near $88 as of Tuesday, pressured by AI disruption concerns and broader software-sector weakness.
- Oppenheimer's Brian Schwartz keeps an Outperform rating but cuts the price target to $130 from $175, citing lower software group multiples; he forecasts Q1 revenue of $3.74 billion and pro forma EPS of $0.96.
- Federal government obligations declined roughly 72% year-over-year to about $48 million, creating a headwind to cRPO, while industry checks show softer big-deal activity but accelerating AI usage growth for ServiceNow.
Risks and uncertainties
- Persistent weakness in public-sector spending and large-deal pipeline softness could continue to pressure near-term revenue and bookings, affecting software sector participants and enterprise procurement cycles.
- The steep drop in federal government obligations - about 72% year-over-year to roughly $48 million - poses a meaningful headwind to cRPO, which can influence revenue visibility and investor sentiment.
- AI-related skepticism may keep ServiceNow in a "show-me" category after earnings, delaying valuation recovery even if usage metrics improve, impacting software valuations more broadly.
Note: This article reports the analyst views and company-related figures as presented. It does not add new financial projections or external context beyond those provided.