ServiceNow faces more cautious outlook as UBS cites AI-driven budget pressures Proactive uses images sourced from Shutterstock
UBS has lowered its rating on ServiceNow Inc (NYSE:NOW, XETRA:4S0) to Neutral from Buy, saying its earlier conviction that the company was best positioned among application software firms in the AI era has weakened amid emerging signs of budget pressure in non-AI software spending.
The bank noted that while customers continue to view ServiceNow as a core “system of record” for IT assets, there is growing interest in using AI to build lighter workflow tools on top of existing systems.
Analysts said this could gradually reduce demand for certain ServiceNow workflows as enterprises shift toward more agentic ticket resolution and custom-built automation layers.
The analysts said they did not hear consistent evidence that ServiceNow is being adopted as an AI “agent orchestration” layer.
On the demand side, UBS flagged increasing signs that enterprise customers are beginning to constrain spending on traditional software in order to prioritize AI-related infrastructure and data investments expected to accelerate into 2026. The firm noted more than half of its recent enterprise conversations included anecdotes of tighter non-AI software budgets.
Reflecting these trends, UBS trimmed its growth outlook, now expecting more modest upside to guidance and lowering its forecast for constant-currency subscription revenue growth to around 19% in 2026. It also reduced its estimate for cRPO growth, projecting a slowdown to 16% by the end of 2026, down from a prior estimate of 20%.
The bank also cut its price target to $100 from $170, citing a 2027 EV/FCF multiple of 13x versus 23x previously.
Shares of ServiceNow were down 8.6% on Friday in New York.