ServiceNow's 80% Stock Plunge Exacerbates Valuation and Risk Concerns Amid Strong Fundamentals

What happened

ServiceNow's stock collapsed 80.4% to $153.38 on December 18, 2025, defying a broader market uptick and signaling acute investor distress. The DeepValue master report underscores ServiceNow's robust operational health, with ~$11 billion in revenue, high free cash flow, and a net cash balance sheet. However, the report critically notes a valuation priced for perfection, trading at a >250% premium to DCF and burdened by risks like heavy stock-based compensation, intense AI competition, and an unresolved DOJ investigation. This drastic decline likely reflects a market reassessment of these embedded risks or potential undisclosed negative catalysts, pushing sentiment beyond mere valuation correction. Despite the sharp drop, the stock may still hover above intrinsic value estimates, highlighting persistent overvaluation and the need for vigilant analysis.

Implication

The 80% stock plunge amplifies the DeepValue report's warnings, suggesting that risks like AI competition or regulatory issues may be materializing faster than anticipated. For value-oriented investors, this correction reduces the extreme valuation premium, potentially creating a buying opportunity if core business metrics remain intact and growth sustains. However, with the DCF intrinsic value estimated at ~$224 per share, even at $153, the stock lacks a clear margin of safety, demanding further discount for investment merit. Monitoring upcoming filings and announcements is crucial to confirm whether the drop stems from transient factors or deeper operational cracks, such as failed AI monetization or adverse DOJ outcomes. The report's 'WAIT' stance could evolve toward 'POTENTIAL BUY' if the price fall aligns valuation with fundamentals, but until then, caution prevails due to elevated uncertainty and competitive pressures.

Thesis delta

The DeepValue report's 'WAIT' judgment was predicated on overvaluation and unresolved risks. This precipitous price drop partially mitigates the valuation concern but heightens risk perceptions, potentially shifting the thesis toward 'POTENTIAL BUY' if subsequent data confirms no material business deterioration. However, without evidence of sustained growth or risk resolution, the thesis remains cautiously in 'WAIT' mode, with intensified focus on fundamental triggers.