UBS downgrades ServiceNow as AI disruption threatens enterprise software spending budgets

UBS downgrades ServiceNow, saying AI is a bigger threat than first believed

ServiceNow could fall even farther as software stocks spiral due to artificial intelligence disruption risks, even though the company once seemed immune to threats posed by AI, according to UBS. The investment bank downgraded ServiceNow to neutral from buy. It also lowered its price target on shares to $100 from $170. "To date, our view has been that ServiceNow is better-positioned for this AI era relative to other application software firms... [but] given that our confidence in that view has weakened and we're hearing more anecdotes of non-AI apps software budget pressure, we're moving to a Neutral rating," UBS analyst Karl Keirstead said Thursday in a note to clients. ServiceNow shares are down 41% this year, leading a broader slump in software that has persisted despite a relief rally in U.S. stocks this week. The iShares Expanded Tech-Software Sector ETF (IGV) is off by 27% this year, with the latest hit this week coming from the release of a new Anthropic agentic tool. Those losses could mount if those companies' clients begin to curb their non-AI software spending, according to UBS. "Beginning in December, we began hearing [Fortune 500] enterprises and partners express a view that because AI and the associated data and infrastructure spend were expected to inflect in 2026, spending on non-AI or core software spend was now under greater pressure," Keirstead wrote. "We'd estimate that over half our enterprise customer calls these days include some anecdotes of containing non-AI spend." UBS' call goes against consensus on Wall Street. Of the 49 analysts covering ServiceNow, 45 have a buy or strong buy on the stock despite this year's sell-off

UBS downgrades its only Buy-rated application software stock amid AI risks By Investing.com

Investing.com -- UBS downgraded ServiceNow to neutral from buy in a note on Friday, cutting its price target to $100 from $170, as the bank reassesses whether the enterprise software company's competitive position is as resilient to artificial intelligence disruption as previously believed. Analyst Karl Keirstead said ServiceNow had been UBS's only buy-rated application software stock precisely because the firm viewed it as better positioned than peers for the AI era. "Given that our confidence in that view has weakened and we're hearing more anecdotes of non-AI apps software budget pressure, we're moving to a Neutral rating despite the material YTD de-rating in the stock to 15x 2026 FCF," Keirstead wrote. UBS flagged three specific concerns from customer conversations. First, while clients showed no desire to replace ServiceNow as a system of record, some reportedly expressed interest in using AI to custom-build workflow automation apps or handle service management tickets in a more agentic way. Second, customer support was identified as the functional area most at risk from AI-driven headcount reductions, creating seat growth risk in ServiceNow's CSM segment, which accounts for roughly 10% of revenues. Third, UBS did not hear consistent buy-in for using ServiceNow at the agent orchestration layer. On budgets, Keirstead noted that over half of enterprise customer conversations now include anecdotes of containing non-AI software spend, as AI infrastructure investment crowds out core software budgets. "We now also expect skinnier-than-normal beats in the coming quarters, more limited upside to the guidance for stable organic c/c sub revs growth of 19% in 2026 and we're trimming our cRPO growth estimates to exit 2026 at 16% c/c, down from our previous estimate of 20%," UBS concluded.