ServiceNow (NOW) fell alongside software peers after disappointing quarterly updates from Datadog, Figma, and HubSpot triggered a sector-wide selloff, even as the company continues to highlight AI-driven demand in its own business.

ServiceNow shares have been volatile this year, with the stock down 20.41% on a year to date share price return basis and a 32.88% decline in 1 year total shareholder return. At the same time, a 28.70% 90 day share price return, along with recent AI centric product launches, partnerships, and the new Brazil office, have supported a rebound in momentum following the recent sector driven selloff.

If you are tracking how AI driven software stories are being priced, it can help to widen the lens and see what else the market is rewarding through our screener of 56 AI infrastructure stocks

Bulls see ServiceNow’s AI workflow push and recent 90 day rebound as the start of a reset. Bears see a sector exposed to disruption and rich expectations. Which case do the current valuation markers support next?

Most Popular Narrative: 55.9% Undervalued

The most followed valuation narrative puts ServiceNow’s fair value at $266.01 per share, compared with the latest close at $117.35. This is a wide gap that naturally raises questions about what is driving such a strong conviction on the upside.

The market sees software.

I see something very different.

I see infrastructure.

Imagine walking into a Fortune 500 company tomorrow morning and turning off ServiceNow.

Not the logo.

Not the stock.

The platform itself.

HR requests stop moving.

IT tickets stop flowing.

Security workflows lose visibility.

Employee onboarding slows.

Approvals stall.

Critical business processes begin piling up like cars on a freeway after a major accident.

Nobody notices ServiceNow when it's working.

Everyone notices when it isn't.

Want to understand why this narrative sees ServiceNow as digital infrastructure, not just software? The valuation discussion focuses on compounding earnings, expanding cash generation and a premium profit profile that the market is currently pricing very differently.

Result: Fair Value of $266.01 (UNDERVALUED)

However, ServiceNow’s narrative could still be challenged if AI related demand cools, or if early renewals and acquisitions mask weaker organic workflow growth.

Another View: ServiceNow Through Market Ratios

That $266.01 fair value comes from a cash flow driven model. Market based ratios tell a very different story. ServiceNow currently trades on a P/E of 72.6x compared with 27.3x for peers and 31.4x for the wider US Software group, while the fair ratio is 48.9x. That gap points to richer pricing on earnings, even if cash flow models argue for upside. Which signal do you trust more today?

Next Steps

If this mix of optimism and concern around ServiceNow feels familiar, do not sit on the sidelines. Take a closer look at how the balance of potential upsides and watchpoints stacks up in the 3 key rewards and 1 important warning sign

Looking for more investment ideas beyond ServiceNow?

If you want to build on what you have learned about ServiceNow today, use these focused stock ideas to keep your watchlist working harder for you.

• Target dependable income streams and assess companies with strong payout profiles by reviewing 9 dividend fortresses.
• Spot potential value opportunities early by checking out the screener containing 19 high quality undiscovered gems.
• Prioritise resilience and capital preservation by analysing the 78 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.