ServiceNow NOW shares have plunged 29.8% over the past six months, underperforming the broader Zacks Computer and Technology sector’s return of 19.1% and the Zacks Computers - IT Services industry’s decline of 18.9%.
ServiceNow has also underperformed industry peers, including Microsoft MSFT and Salesforce CRM, while outperforming Atlassian TEAM. In the past six months, shares of Microsoft, Salesforce and Atlassian have lost 12.9%, 27.2% and 36.9%, respectively.
This underperformance raises the question: Should investors cut their losses and exit, or is it worth holding NOW stock?
6-Month Price Return Performance
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NOW Faces Integration Risk From Multiple Acquisitions
ServiceNow is integrating several acquisitions at the same time, including Moveworks, Armis, Veza and Pyramid Analytics. While these acquisitions add new AI, security and data capabilities, they also increase execution risk.
As a result of its back-to-back acquisitions, ServiceNow will need to integrate the acquired products, employees, technologies and sales teams into its existing business. As a result, the company will incur higher costs. These costs are expected to hurt the company's profitability before the benefits of synergies from acquisitions are fully realized.
For instance, the Armis acquisition is also expected to put pressure on profitability in 2026. Management expects Armis to reduce 2026 subscription gross margin by 25 basis points, operating margin by 75 basis points and free cash flow margin by 200 basis points. For the second quarter of 2026, Armis is expected to reduce its operating margin by 125 basis points.
Management expects efficiency gains to offset these pressures over time and eventually eliminate the margin impact. However, if customer adoption is slower than expected, the revenue contribution from these businesses could take longer to materialize.
Middle East Deal Delays Hurt NOW's Prospects
Several large sovereign cloud and on-premise deals in the Middle East were delayed during the first quarter of 2026 due to the ongoing regional conflict. Management stated these delays reduced first-quarter subscription revenue growth by approximately 75 basis points. These deals are recognized differently from recurring subscription contracts, so even a small number of delayed transactions can have a noticeable impact on quarterly revenue growth.
Although the delays were due to timing-related issues and not due to a change in underlying demand, the situation highlights that large government and sovereign cloud deals can be affected by geopolitical events. If geopolitical tensions continue, additional delays could affect the timing of future revenue recognition and result in significant volatility in the company's overall growth.
ServiceNow Faces Stiff Competition
ServiceNow faces stiff competition from the likes of Microsoft, Salesforce and Atlassian.
ServiceNow faces stiff competition from Microsoft's Azure platform. Through its Azure platform, Microsoft offers cloud-based solutions that provide customers with software, services, platforms and content. In the third quarter of fiscal 2025, revenues from Azure and other cloud services grew 40% year over year, or 39% in constant currency. Microsoft expects this momentum to continue in the fourth quarter of fiscal 2026, where it guides Azure to grow 39% to 40% year over year in constant currency.
Salesforce competes with ServiceNow through its offerings, such as Agentforce, Data Cloud and Slack, through which it creates a unified ecosystem and connects customer data with integrated AI across systems, apps and devices. In the first quarter of fiscal 2027, Agentforce’s annual recurring revenues (ARR) surpassed $1 billion, up in triple digits year over year. Salesforce expects this momentum to continue in fiscal 2027, on the back of robust customer demand for its agentic offerings.
Atlassian competes with ServiceNow through its suite of cloud-based software solutions, such as Jira, Rovo and Teamwork Graph, which help organizations collaborate and manage their workforce. In the third quarter of fiscal 2026, Atlassian continued to add millions of monthly active users to Rovo, while strong customer engagement across Jira helped the company's cloud business grow 29% on a year-over-year basis.
NOW’s Premium Valuation Warrants Cautious Approach
NOW shares are currently overvalued, as suggested by the Value Score of D. The stock is trading at a premium, with a forward 12-month price/earnings of 26.16X compared with the industry’s 16.91X.
NOW Forward 12 Months (P/E) Valuation Chart
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Key Technical Indicator Signals Bearish Trend for NOW
ServiceNow shares have dipped below their 200-day moving averages, a bearish technical signal that indicates the potential for continued downward pressure in the short term.
NOW 200-Day Simple Moving Average
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Conclusion: Sell NOW Stock Right Now
ServiceNow faces several near-term risks, such as geopolitical headwind in the Middle East, and dilutive impact on margins as a result of its back-to-back acquisitions. Further, intense competition from rivals such as Microsoft, Salesforce and Atlassian is a key concern. These could hurt NOW’s prospects in the near term.
The above-mentioned factors, along with the company’s premium valuation, warrant a cautious approach to the stock, which makes this Zacks Rank #4 (Sell) stock less attractive in the near term.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).