Investment bank Stifel warns that ServiceNow's federal business is rapidly cooling down, lowering the target price from $180 to $135.

As the first quarter financial report season of 2026 approaches, Wall Street investment bank Stifel recently released a research report, significantly lowering the target stock price of software giant ServiceNow (NOW.US) from the original $180 to $135. The core logic behind this adjustment is that analysts have observed signs of unexpectedly weak software spending at the federal government level in the United States, directly impacting ServiceNow's key source of revenue. Despite the sharp drop in the target price, Stifel still maintains a "buy" investment rating, believing that the current pain is more due to drastic changes in the macro environment rather than the loss of the company's core competitiveness. Looking back at the deeper background of this change, the federal government business was once the strong growth engine for ServiceNow, with the sector achieving explosive growth of about 30% in the same period last year. However, in 2026, the newly established Department of Government Efficiency (DOGE) began implementing strict cost-cutting and contract restructuring plans aimed at streamlining the operational expenses of various agencies. This policy shift has led to a large number of planned software procurement projects being delayed or canceled, directly dragging down ServiceNow's performance in the first quarter. Stifel's research shows that this "rapid cooling of federal business" is not only influenced by seasonal factors, but also driven by structural decline due to policy reshaping. Stifel analyst Brad Reback's team pointed out in the research report: "Based on our analysis of data (excluding Department of Defense data due to lag of several months), federal business has declined significantly year-on-year, compared to strong growth of the same period last year (30% year-on-year growth), which may be worse than the company's initial guidance." In terms of specific financial expectations, Stifel indicated that ServiceNow's current remaining performance obligations (cRPO) growth in the first quarter may only slightly exceed the company's official guidance of about 50 basis points (below the previous quarter's organic growth space of about 100 basis points), corresponding to a constant currency growth rate of about 20.5% year-on-year (below the 20% guidance). "Considering that the management's guidance includes an additional 100 basis points of non-organic contribution from Moveworks, we estimate an organic growth rate of about 19.5% for cRPO." Of particular note is the cancellation of a contract related to a $15 million "delayed resignation plan," which although may have been partially included in management's expectations, reflects the cautious attitude of government clients towards expenditure. Analysts believe that as the federal government reevaluates various technology service agreements, ServiceNow's order conversion efficiency will face a severe test in the short term. It is understood that ServiceNow is expected to announce its financial performance for the first quarter of the 2026 fiscal year (ending March 31, 2026) after the U.S. market closes on April 22 (Wednesday). Market consensus expects an adjusted earnings per share of $0.97, GAAP earnings per share of $0.53, and revenue of $3.75 billion. The company's previous guidance for first-quarter revenue was $3.65-3.655 billion. In terms of market reaction, despite ServiceNow achieving revenue growth of over 20% for three consecutive quarters, its stock price continues to be under pressure, with the company's stock price having fallen by about 43% over the past six months, hovering near a 52-week low, reflecting investors' general concerns about the slowdown in the Software as a Service (SaaS) sector. In addition to Stifel, mainstream institutions such as Wells Fargo & Company have recently also lowered their target prices, all pointing out that the tightening of government budgets on the government side is an unavoidable risk in the short term. Nevertheless, the market still pins hopes on the official financial report to be released on April 22, expecting management to provide clearer guidance on the breakthroughs in commercialization of new AI products (such as Now Assist) and whether federal business can rebound in the second quarter.