ServiceNow Stock Steadies After Tumbling Amid Talk of Mega Deal. What to Know.

ServiceNow shares caught a downgrade from analysts at KeyBanc. (Dreamstime)

Key Points

• ServiceNow is reportedly nearing a deal to acquire cybersecurity startup Armis for up to $7 billion, which would be its largest acquisition.
• KeyBanc downgraded ServiceNow to Underweight with a $775 price target, citing AI’s potential threat to the software-as-a-service business.
• ServiceNow shares were up 1.0% in premarket trading Tuesday after falling 11.5% on Monday due to acquisition reports and a downgrade.

ServiceNow stock was steadying Tuesday after a significant fall the previous day.

The shares were felled by the double whammy of reports that the software company is eyeing a major deal and a downgrade from analysts at KeyBanc.

ServiceNow is closing in on a deal to buy cybersecurity start-up Armis for as much as $7 billion, Bloomberg reported Sunday, citing people familiar with the matter. Armis protects devices against cyber threats.

ServiceNow didn’t respond to a request for comment early Monday.

“OT (operational technology) has been an area of focus for ServiceNow and this potential acq. would further solidify its positioning in an increasingly important market if it were announced,” wrote Morgan Stanley analyst Keith Weiss in a research note.

Such a deal would be Servicenow’s biggest acquisition ever. It would follow its $2.85 billion deal for artificial-intelligence start-up Moveworks, announced in March this year.

ServiceNow shares were up 1.0% at $773.00 in the premarket Tuesday, after closing down 11.5% on Monday

ServiceNow provides automation tools to big businesses and has been integrating AI into its own offerings. In particular, it is racing to deploy AI agents —programs that have the ability to take simple directions and complete multistep tasks—in competition with software companies such as Microsoft and Salesforce . Buying Armis would represent an additional broadening of ServiceNow’s product range.

“While Armis will likely be positioned as a security acquisition, it should also make ServiceNow’s core CMDB more relevant, giving it a more complete picture of an enterprise’s critical assets,” wrote William Blair analyst Arjun Bhatia in a research note. A CMDB, or configuration-management database, is a repository that stores detailed information about IT assets such as hardware and software.

“It should ultimately have ramifications beyond security and will likely impact core workflow, IT asset management, AI control tower, and other ServiceNow offerings.”

Bhatia has an Outperform rating on ServiceNow stock.

Separately, ServiceNow was downgraded by KeyBanc analysts to Underweight with a $775 price target in a research note Sunday. They pointed to the threat to the software-as-a-service, or SaaS business, from AI.

“Signals in IT employment data… lead us to believe there is a more substantial risk that the ‘Death of SaaS’”’ narrative, which [ServiceNow] has somewhat escaped to this point, may come for ServiceNow in the coming quarters,” wrote KeyBanc analyst Jackson Ader in a research note.

Write to Adam Clark at adam.clark@barrons.com