ServiceNow's Q4 Growth Preview Highlights AI Momentum But Underscores Valuation Risks

What happened

ServiceNow is projected to achieve 19.5% subscription revenue growth for Q4 2025, according to a Zacks preview, fueled by AI adoption, major partnerships, and recent acquisitions like Moveworks and Armis. The DeepValue master report confirms ServiceNow's consistent high-teens to low-20s growth but notes a 33% stock decline to ~$141.80, leaving it trading at premium multiples (P/E ~85x) that assume sustained AI monetization. AI initiatives such as Now Assist drive demand, yet the report criticizes the lack of disclosed AI consumption revenue, which is crucial for validating the growth narrative. Investor sentiment has turned cautious due to softer guidance, FX headwinds, and integration risks from $10.6B in AI/security M&A, despite strong fundamentals like 98% renewal rates and rising free cash flow. The upcoming Q4 earnings will be pivotal in assessing whether growth can exceed 20% and if AI usage economics become transparent enough to support current valuations.

Implication

The 19.5% expected Q4 growth, while solid, falls below the >20% threshold needed to upgrade from a 'WAIT' rating per the DeepValue report, highlighting persistent execution risks. AI momentum is evident but remains unquantified in terms of consumption-based revenue, leaving the bull case reliant on future disclosures that may not materialize. Large acquisitions like Armis introduce integration complexities that could strain margins and capital allocation, amplifying downside if synergies disappoint. At elevated multiples, any growth shortfall or weak AI metrics in Q4 could trigger further de-rating, whereas beats may offer limited upside given crowded investor expectations. Thus, maintaining a cautious stance and awaiting clearer evidence from earnings is prudent to balance growth potential against valuation fragility.

Thesis delta

The Q4 preview reinforces the existing thesis that ServiceNow's growth is robust but insufficient to overcome high valuation without proven AI monetization. No shift is warranted until earnings provide concrete data on whether subscription growth sustains above 20% and AI consumption revenue becomes material, as these are key triggers for re-assessment.