Investment bank Stifel warns that ServiceNow(NOW.US) federal business is rapidly cooling down. The target price has been lowered from $180 to $135.

Zhitong Finance APP learned that, as the 2026 first-quarter earnings season approaches, the Wall Street investment bank Stifel recently released a research note that significantly lowered the target price of the software giant ServiceNow (NOW.US), reducing it from $180 to $135. The core logic behind this adjustment is that analysts observed signs of unexpectedly weak software spending at the U.S. federal government level, directly impacting ServiceNow’s key revenue source. Despite the substantial cut to the target price, Stifel still maintains an “Buy” investment rating for it, believing that the current pains are more driven by dramatic changes in the macro environment rather than a loss of the company’s core competitiveness.

Looking back at the deeper background of this shift, the U.S. federal government business had been a strong engine for ServiceNow’s growth. In the same period last year, the segment even saw explosive growth of about 30%. However, after entering 2026, the newly established Department of Government Efficiency (DOGE) began implementing strict spending cuts and contract restructuring plans, aiming to streamline operating expenses across various agencies.

This policy-level shift caused many software procurement projects that were originally planned to be delayed or canceled, directly dragging down ServiceNow’s first-quarter performance. Stifel’s research indicates that this “rapid cooling of federal business” is not only influenced by seasonality, but also by a structural decline driven by policy reshaping.

In the research note, Stifel analysts Brad LiBach’s team stated: “Based on the data we analyzed (the Department of Defense’s data was not included due to a lag of several months), federal business declined significantly year over year, and the base was strong in the prior-year period (up 30% year over year). This could be worse than management’s initial guidance.”

In terms of specific financial expectations, Stifel pointed out that ServiceNow’s growth in its current remaining performance obligations (cRPO) in the first quarter may only slightly exceed the company’s official guidance by about 50 basis points (below the roughly 100 basis points of organic growth room in the prior quarter). This corresponds to about 20.5% year-over-year growth at constant currency (below the 20% guidance). “Taking into account that management guidance includes about 100 basis points of non-organic contribution from Moveworks, we estimate that cRPO’s organic growth rate is about 19.5%.”

Of particular note, a contract related to a “deferred resignation plan” involving $15 million saw cancellation (de-obligation). While this single write-down may already be partially reflected in management’s expectations, the prudent spending posture from government customers it reflects has made the market uneasy. Analysts believe that, as the federal government is re-evaluating various technology services agreements, ServiceNow’s near-term order conversion efficiency will face a severe test.

ServiceNow is expected to release its financial results for 1Q fiscal year 2026 (as of March 31, 2026) after the U.S. stock market closes on April 22 (Wednesday). After adjustments to market consensus, the expected earnings per share are $0.97 (non-GAAP) and GAAP EPS of $0.53, with revenue of $3.75 billion. The company’s prior guidance for first-quarter revenue was $3.65 billion–$3.655 billion.

From the market reaction, even though ServiceNow has achieved revenue growth of over 20% for three straight quarters, its stock price has continued to face pressure. Over the past six months, the company’s share price has fallen by about 43% in total, remaining near the 52-week lows, reflecting investors’ widespread concerns about slowing growth in the SaaS (software as a service) sector.

In addition to Stifel, major institutions such as Wells Fargo have also lowered their target prices in recent days, unanimously pointing to the risk that tighter budgets on the government side is unavoidable in the short term. Even so, the market still hopes for clearer guidance from the official earnings report to be released on April 22, expecting management to provide more explicit direction on breakthroughs in the commercialization process of its new AI products (such as Now Assist), and whether second-quarter federal business can rebound after bottoming out.