ServiceNow (NOW) Stock Faces Pressure as Federal Spending Concerns Mount

Key Takeaways

Table of Contents

Stifel reduced ServiceNow’s price target from $180 to $135 while maintaining its Buy recommendation
Shares have declined 43% over six months, hovering near the 52-week low
Sluggish U.S. government spending and typical Q1 softness are primary concerns
Federal segment revenue has declined significantly compared to robust year-ago performance
First quarter 2026 results scheduled for April 22; analysts project $3.75B in revenue

Stifel has reduced its price objective for ServiceNow (NOW) from $180 down to $135, pointing to challenging conditions in federal government spending and lackluster momentum entering the year. Despite the downgrade, the investment firm maintained its Buy recommendation.

ServiceNow, Inc., NOW

The revision follows Stifel’s due diligence with system integration partners, which revealed a slight deterioration in quarterly sentiment. Multiple contacts attributed the weakness to typical seasonal patterns as sales teams rebuild pipelines after an intense year-end closing period.

The government sector has experienced a notable year-over-year contraction, especially when compared against exceptionally strong prior-year results that delivered 30% expansion. Stifel’s analysis indicates this downturn incorporates a $15 million de-obligation connected to the Deferred Resignation initiative, though analysts believe this factor was likely already reflected in the company’s initial projections.

“It appears the Fed business is down meaningfully Y/Y vs. what was a very strong year-ago comp,” Reback wrote. The analyst added that the drop appears worse than management had originally anticipated.

Stifel now anticipates approximately 50 basis points of first quarter current remaining performance obligation (cRPO) outperformance — a decline from the roughly 100 basis points seen last quarter. This positions expected cRPO expansion at around 20.5% year-over-year in constant currency terms, marginally exceeding the company’s 20% forecast.

Government Sector Challenges

The lowered price objective also accounts for ServiceNow’s evolving business dynamics as clients increasingly adopt its artificial intelligence capabilities. This transition brings consumption-based revenue streams and potential pressure on gross margins, although the company maintains a healthy 77.5% gross profit margin over the trailing twelve months.

Stifel anticipates federal performance will strengthen in the second quarter of 2026, observing that this period absorbed the most significant DOGE-related disruptions in 2025, creating an easier year-over-year benchmark.

System integration partners expressed greater confidence regarding the Q2 opportunity pipeline, offering some encouragement for the latter half of the fiscal year.

Upcoming Quarterly Report

ServiceNow plans to announce first quarter 2026 financial results on April 22 following market close. Wall Street consensus anticipates adjusted earnings per share of $0.97, GAAP EPS of $0.53, and total revenue of $3.75B. Management’s official guidance projected revenue in the range of $3.650B to $3.655B.

Although the company has delivered revenue growth exceeding 20% for three consecutive quarters, shares have faced persistent selling pressure, declining more than 40% across the past half-year.

Several other analysts have recently adjusted their projections downward. FBN Securities lowered its target from $220 to $160 while keeping an Outperform rating. BNP Paribas Exane maintained its Outperform stance with a $140 objective.

Citizens takes a more optimistic view, maintaining a Market Outperform rating with a $260 price target and forecasting Now Assist ACV will reach $1 billion by year-end 2026.

NOW currently trades near its 52-week low of $98, with shares at $104.04 at the time of writing.

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