CLSA Initiates 'Underperform' Rating on ServiceNow (NYSE: NOW) Amidst Growth and Challenges

• Analyst firm CLSA has initiated an "Underperform" rating on ServiceNow (NYSE: NOW), citing potential business challenges.
• Despite the cautious outlook, ServiceNow projects strong Q2 2026 revenues of $3.92 billion and an EPS increase to $0.86.
• The company demonstrates robust AI adoption and subscription growth, yet faces pressures from rising costs and intense competition impacting profit margins.

Analyst firm CLSA has initiated coverage on ServiceNow with an "Underperform" rating. This new rating was assigned on July 20, 2026, when the stock price for the enterprise software company was $103.24. ServiceNow provides cloud-based platforms that help automate business workflows for large companies.

This cautious outlook comes as ServiceNow prepares to release its second-quarter 2026 results. Analysts project revenues to grow by 22% to $3.92 billion. Earnings per share (EPS), which measures a company's profit per share of stock, is expected to rise by 4.88% to $0.86 for the quarter.

Despite the rating, some see positive signs in ServiceNow's strong AI adoption and subscription growth. As highlighted by Seeking Alpha, ServiceNow has a 21% subscription revenue growth guide and a high 97% renewal rate. Its AI monetization is also accelerating, with some product deals growing 70% year-over-year.

However, the "Underperform" rating may reflect several business challenges. As highlighted by Zacks Investment Research, ServiceNow faces rising costs, longer spending cycles, and intense competition. These factors create pressure on the company's profit margins, which is the percentage of revenue that turns into profit.

On the day of the rating, ServiceNow's stock traded at $103.24, significantly below its 52-week high of $210.20. The company has a market capitalization of $106.47 billion. Some analysts note its stock valuation is near decade lows, trading at 26 times its expected future earnings.