ServiceNow's $12B Acquisition Spree Amplifies Valuation and Integration Risks Amid Overvaluation Concerns

What happened

ServiceNow has embarked on a $12 billion acquisition spree in 2025, targeting AI, CPQ, and data capabilities to expand its workflow platform. This aggressive M&A strategy unfolds as the stock already trades at premium valuations, with a P/E of 92x and EV/EBITDA of 71x, indicating lofty growth expectations. The DeepValue report highlights ServiceNow as overvalued by approximately 240% based on DCF analysis, with significant risks from heavy stock-based compensation, a DOJ investigation, and cybersecurity overhangs. These acquisitions, including pending deals like Moveworks, introduce integration challenges and potential goodwill impairment, which could strain financials amid rising fixed cloud commitments. Investors are rightfully concerned that this spree may not justify the high valuation if synergies fail to materialize or execution stumbles.

Implication

Investors should brace for increased financial strain as the $12 billion spent on acquisitions could deplete cash reserves or add leverage, reducing margin of safety in a richly priced equity. Integration risks may lead to operational hiccups and higher costs, threatening profitability and the 20%+ growth narrative that supports current multiples. With the stock trading at 92x TTM EPS, any misstep in M&A execution could trigger sharp price declines, especially given the company's history of data leaks and legal overhangs. The acquisitions aim to bolster AI monetization, but failure to drive meaningful ARPU uplift could undermine the growth premium and intensify competition from hyperscalers. Overall, this spree adds another layer of uncertainty, reinforcing a cautious or sell stance while necessitating close monitoring of customer metrics and SBC trends.

Thesis delta

The news of ServiceNow's $12 billion acquisition spree does not fundamentally shift the DeepValue thesis of 'POTENTIAL SELL,' as it aligns with existing concerns about M&A integration risks, overvaluation, and financial overhangs. However, it intensifies the urgency for investors to scrutinize execution, as poor synergy realization or goodwill impairments could accelerate downside, potentially hardening the sell bias. This development underscores the need for vigilance on growth durability and AI monetization to justify the aggressive capital allocation in a high-risk environment.