UBS announced a downgrade of ServiceNow to Neutral from Buy and lowered its 12-month price target to $100 from $170. The decision follows a reassessment of how exposed the enterprise software provider might be to disruption related to artificial intelligence.
Analyst Karl Keirstead explained that ServiceNow had been UBS’s only Buy-rated application software stock because the firm believed it was comparatively well positioned for an AI-driven future. That conviction has weakened, he wrote, amid mounting customer anecdotes of budget pressure on non-AI software spend and the broader market re-rating of the shares.
UBS highlighted three primary themes emerging from conversations with ServiceNow customers:
- System of record stability, but alternative approaches to automation - Clients reportedly showed no intent to displace ServiceNow as a system of record, yet some expressed interest in leveraging AI to custom-build workflow automation applications or to handle service management tickets in a more agentic manner.
- Customer support headcount risk - Customer support was identified as the functional area most vulnerable to AI-driven headcount reductions, creating downward risk to seat growth in ServiceNow’s Customer Service Management (CSM) segment, which represents roughly 10% of the company’s revenues.
- Limited consensus for agent orchestration - UBS did not hear consistent buy-in from customers for adopting ServiceNow at the agent orchestration layer, an area where broader adoption would be needed to underpin some of the company’s upsell and expansion assumptions.
On budgeting dynamics, Keirstead noted that more than half of enterprise customer discussions now include anecdotes of deliberate containment of non-AI software spend as companies prioritize AI infrastructure. UBS said this budget reallocation is crowding out traditional core software investment.
Reflecting these customer-level signals, UBS said it now expects fewer and slimmer upside surprises in upcoming quarters. The bank flagged more limited upside to ServiceNow’s guidance for stable organic constant-currency subscription revenue growth of 19% in 2026 and trimmed its consolidated remaining performance obligation (cRPO) growth estimate to exit 2026 at 16% year-over-year, down from a prior projection of 20%.
UBS also observed a material year-to-date de-rating of ServiceNow’s shares to 15x 2026 free cash flow, a valuation metric that formed part of its reassessment. The combination of the changing customer sentiment, budget pressures, and valuation movement led UBS to remove its Buy rating despite previously viewing the company as better positioned than peers for the AI transition.
The downgrade and lower price target encapsulate UBS’s recalibrated view that ServiceNow’s competitive position may be less insulated from AI-related disruption than previously believed.