Software Stocks Plunge into Bear Market Territory Amid AI Disruption Fears as ServiceNow Drops 11%
Shares of ServiceNow (NYSE: NOW) tumbled more than 11% on Thursday following the release of its fourth-quarter earnings, dragging down broader software stocks into bear market territory as investor fears mount over artificial intelligence disruption.[2][3]
The sharp decline in ServiceNow’s stock—down as much as 12.7% intraday and closing with an 11% drop—comes despite the company reporting results that beat Wall Street expectations. Subscription revenue rose 21% year-over-year, while remaining performance obligations (RPO), a key indicator of future revenue, surged 27% to $28.2 billion. The current portion of RPO, set to be recognized over the next year, jumped 25% to $12.85 billion, providing a solid revenue floor for the coming quarters.[2]
Earnings Beat Fails to Impress Amid Growth Concerns
Analysts had forecasted quarterly revenue of $3.53 billion and earnings per share (EPS) of $0.88, figures that ServiceNow comfortably exceeded. Yet, the market reaction was brutally negative, with the stock plunging despite these positives. For the full year, ServiceNow guided for 21% subscription revenue growth, but after adjusting for currency fluctuations and acquisitions, organic growth lands at just 19%—below the critical 20% threshold that investors demand from high-growth SaaS names, according to KeyBanc analyst Jackson Ader.[2]
This miss on organic growth expectations has amplified broader anxieties in the software sector. ServiceNow’s focus on AI-driven process automation is under scrutiny, with investors questioning whether competitors can easily replicate its offerings using their own AI tools. “It isn’t a coincidence that many software and software-as-a-service (SaaS) stocks have taken a beating lately,” noted one analysis, highlighting the sector-wide selloff.[2]
A Year of Acquisitions and a 50% Stock Rout
ServiceNow’s woes are part of a devastating 12-month stretch, with the stock down 49.52% over the past year and 21.69% year-to-date. This mirrors declines in peers like Salesforce (down 40%) and Adobe (down 35%), signaling a sector-wide reassessment of SaaS valuations.[3]
The company pursued aggressive expansion last year, announcing its three largest acquisitions ever: Moveworks for $2.85 billion, Armis for $7.75 billion, and the rumored $1-2 billion deal for Veeza. While these moves bolster AI capabilities, they have fueled concerns about diluting organic growth and straining the balance sheet.[3]
“Investors are worried about the company’s high price/earnings ratio. This is often considered an indication that a stock is overvalued.”
— Matt Rooke, NowBen journalist, via Salesforce Ben[3]
ServiceNow still trades at more than 33 times earnings, a premium multiple amid rising uncertainty. Weak technical signals and elevated options volatility are adding to the turbulence, with analysts pointing to limited upside in the latest guidance.[2][3]
Analyst Divergence: Caution Dominates
Wall Street’s reaction has been mixed but tilting bearish. Cantor Fitzgerald slashed its price target to $200, while Piper Sandler reiterated an “overweight” rating but cut its target from $230 to $200. KeyCorp maintained an “underweight” stance, Arete set a $200 target, and Macquarie held “neutral” at $172.[1]
Earlier in the week, ServiceNow shares were already down 3.3% to $131.80, trading well below its 50-day ($152.88) and 200-day ($172.48) moving averages, with a lofty P/E ratio of 79.7. Positive notes include Bernstein’s “Outperform” rating citing GenAI upside into the second half of 2026, and Zacks forecasting 19.5% Q4 subscription growth driven by AI momentum, partnerships, and acquisitions.[1]
| Firm | Rating | Price Target | Date |
|---|---|---|---|
| Cantor Fitzgerald | — | $200 | Recent |
| Piper Sandler | Overweight | $200 (from $230) | Jan 5 |
| KeyCorp | Underweight | — | Jan 9 |
| Macquarie | Neutral | $172 | Jan 8 |
Bear Market Hits Software Sector Broadly
The ServiceNow plunge has rippled through the software industry, pushing multiple stocks into bear market territory—defined as a 20% drop from recent highs. CNBC reports frame this as a direct response to AI disruption fears, with investors questioning the moats of legacy SaaS providers in an era where generative AI could commoditize automation tools.[1][2]
Even high-profile voices like Jim Cramer have weighed in, urging ServiceNow’s CEO to “bring his A game” to explain the downturn. While Q4 results showcased AI momentum, the market is demanding more proof that ServiceNow can sustain hypergrowth amid competition from AI-native rivals.[1]
Outlook: Wait-and-See for SaaS Investors
Despite the carnage, some optimism lingers. If ServiceNow meets or beats growth forecasts through AI partnerships and integrations, it could stabilize. However, with organic growth lagging and valuations stretched, analysts advise caution. The software sector’s bear market underscores a pivotal shift: AI is no longer just a buzzword but a existential threat reshaping investor expectations.[2][3]
For now, ServiceNow and its peers face a proving ground. Investors are adopting a wait-and-see posture, watching for signs that AI investments translate into unbreakable competitive edges.