AI disruption fears may be overblown, but not for ServiceNow stock

ServiceNow shares fell sharply after UBS analyst Karl Keirstead issued a bearish note, citing a shift in enterprise spending priorities and arguing that generative AI poses a greater threat to the company than previously assumed.

UBS downgrades ServiceNow to neutral

On April 10, ServiceNow (NOW) plunged 6% following Keirstead’s downgrade to “neutral” and a cut to his price target to $100. The note highlighted a material change in how enterprises are allocating budgets, with spending increasingly directed toward AI infrastructure and data rather than “core” seat-based workflow software.

UBS said the stock has already fallen nearly 45% versus its year-to-date high, but maintained that the underlying pressure on margins and growth could persist as ServiceNow funds an AI integration pivot.

AI disruption risk and the “incumbent’s dilemma”

Keirstead argued that AI is forcing a reshuffling of Fortune 500 budgets. Agentic AI tools—along with new releases from companies such as Anthropic—are encouraging enterprises to tighten spending on core software to finance infrastructure and data investments.

In UBS’s view, ServiceNow is no longer insulated from budget-containment strategies sweeping through the tech sector. The analyst also framed the situation as an “incumbent’s dilemma,” where ServiceNow must invest heavily to integrate AI features in order to maintain market share, potentially squeezing margins.

Valuation concerns and premium “evaporation”

Beyond near-term budget pressures, the bear case is tied to valuation. UBS suggested that ServiceNow historically traded at a premium due to consistent growth, but that premium is now evaporating as AI becomes a structural risk.

The logic presented is that if autonomous agents can handle complex workflows across platforms, the need for a centralized, high-cost seat-based licensing model like ServiceNow’s could diminish. UBS also pointed to over half of its recent enterprise calls indicating a desire to cut non-AI spending, creating a dual risk of slower top-line growth and an expensive pivot toward an uncertain AI-native future.

Options pricing points to further downside risk

Options pricing also signaled caution for investors considering a dip-buying approach. The put-to-call ratio for contracts expiring August 21 was described as indicating a massive bearish skew, with the lower price on those contracts suggesting potential for another decline toward about $65.

In addition, the stock’s position below key moving averages was cited as reinforcing bearish control across multiple timeframes.

Market expectations and key risks

While the article noted the bearish options setup, it also highlighted a key risk to the downside thesis: a sharp risk-on or AI rally could trigger a mean-reversion bounce in NOW and an implied volatility “crush,” limiting downside and potentially causing the spread to lose on both direction and volatility.

Despite UBS’s downgrade, the broader Street view remains supportive. The consensus rating was described as “strong buy,” with a mean price target of roughly $186, implying potential upside of more than 120% from current levels.