ServiceNow shares lag market despite strong earnings and bullish Wall Street outlook
The enterprise software giant has fallen 32.1 per cent over the past year, yet analysts maintain a "Strong Buy" consensus, citing robust subscription growth and raised guidance.
ServiceNow shares have significantly underperformed the broader market and the technology software sector over the past 12 months. The company’s stock has declined by 32.1 per cent, a stark contrast to the 20.1 per cent gain recorded by the S&P 500 index during the same period. This underperformance extends to the year-to-date, with ServiceNow shares plunging 23.2 per cent while the S&P 500 has risen 13.1 per cent.
The divergence is even more pronounced when compared against the iShares Expanded Tech-Software Sector ETF, which has seen a modest 6.5 per cent decline over the past year. Despite this persistent weakness in the share price, sentiment among financial analysts remains largely positive. A consensus of 45 analysts currently rates the stock as a "Strong Buy," a configuration that is more bullish than it was two months ago.
The recent optimism follows ServiceNow’s Q2 FY2026 earnings report released on 22 July. The company reported that subscription revenues grew 24.5 per cent year-over-year to $3.88 billion, exceeding the high end of its guidance by 150 basis points. Non-GAAP earnings per share rose 11.1 per cent to $0.90 from the prior-year quarter. Although shares fell approximately 6.5 per cent in the immediate aftermath of the report as investors weighed the outlook, the fundamental numbers remained strong.
ServiceNow subsequently raised its full-year 2026 subscription revenue guidance to between $15.76 billion and $15.78 billion, representing 22.5 per cent growth. The company also guided for a full-year non-GAAP operating margin of 31.5 per cent and a non-GAAP free cash flow margin of 35 per cent. For the third quarter, the firm expects subscription revenue to grow by 20.5 per cent, with a non-GAAP operating margin of 31 per cent.
Analyst activity reflects this continued confidence. On 12 August, Wells Fargo analyst Michael Turrin maintained an "Overweight" rating on ServiceNow and raised the price target from $160 to $175. The mean analyst price target currently stands at $143.67, implying a 22.1 per cent upside from the current share price. The Street-high target of $248 suggests a potential upside of 110.7 per cent.
With a market capitalisation of approximately $128.2 billion, ServiceNow continues to position itself as a key player in the AI-powered enterprise software space. Analysts expect the company’s diluted EPS to rise 14.3 per cent to $2.24 for the fiscal year ending in December 2026. While the stock has missed consensus EPS estimates in two of the past four quarters, the overall analyst stance remains firmly bullish.
