Why ServiceNow Stock Plunged This Week

A disappointing forecast for fourth-quarter current backlog growth sent ServiceNow (NYSE:NOW) tumbling this week despite management raising full-year artificial intelligence revenue targets. Through the Oct. 29, 2026 close, the stock was down 31%, according to data provided by S&P Global Market Intelligence.

ServiceNow stock closed at $109.67 on Thursday, Oct. 29. From the Oct. 23 close on the previous Friday, the S&P 500 gained 1.3%, and the Nasdaq-100 was up 1.5%.

Strong AI momentum met a soft backlog forecast

In its third-quarter financial results reported Wednesday, Oct. 28, ServiceNow generated $4.1 billion in total revenue, up 20.5% year over year, while subscription revenue rose 21% to nearly $4 billion. Adjusted earnings per share came in at $1.00, missing the $1.02 consensus estimate.

ServiceNow sells cloud software that automates workflows, helping business teams streamline tasks. Its enterprise platform serves large clients that rely on it to manage internal software tickets and complex workflows.

While management highlighted an 8.5-fold increase in customer deals spanning five or more AI products, the market focused on management's guidance that current backlog growth would be lower than anticipated, up 18.5% year over year on a constant currency basis. This week's slowing backlog outlook shifts the focus from ServiceNow's AI momentum to whether enterprise workflow platforms face long-term growth friction.

The valuation depends on growth holding up

ServiceNow trades at a trailing price-to-earnings (P/E) ratio of 79, sitting at the high end of its peer range alongside Salesforce at 21 and Workday at 40, so the current valuation requires ServiceNow to deliver robust earnings growth.

Looking ahead, investors should watch the fourth-quarter earnings release in January to see whether current backlog growth stabilizes and whether new AI bundling strategies convert into durable subscription revenue.

Is ServiceNow stock a buy?

CFO Gina Mastantuono made clear on the earnings call that the current backlog, or current remaining performance obligations (cRPOs), is a nuanced metric that "does not necessarily capture all of the momentum in the business." Mastantuono cited a half-percentage-point of subscription backlog growth that is excluded from cRPO. This increase in the subscription backlog will be included in revenue but will not be counted in the backlog.

Overall, ServiceNow is delivering strong growth at scale, as evidenced by over 20% year-over-year growth in subscription revenue and a 23% increase in RPO. This is consistent with the company's past performance.

The sell-off reflects real questions about near-term backlog growth, but management's AI traction and steady subscription growth give long-term investors something to weigh.

Before calling the sell-off a buying opportunity, investors may want to wait until the next earnings report, which should bring more clarity to this question and which of those factors carries more weight.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Salesforce, ServiceNow, and Workday. The Motley Fool has a disclosure policy.