ServiceNow (NOW)

Investment Review After Q2 FY2026 Earnings (stock price as of 2026.07.22)

TL;DR

ServiceNow is the enterprise workflow and AI “control tower” — the platform that automates and governs work across IT, security, CRM, and HR. Just reported: Q2 FY2026 subscription revenue $3.88B (+23% cc), non-GAAP OM 29.5%, cRPO $13.2B (+21.5%) — a clean beat across every metric, AI ACV crossing $1B. FY26 guide was raised (subscription $15.76B/+21% cc, OM 31.5%, FCF margin 35%) with Q3 ~20% — durable, high-quality growth. Stock at $95 with 25x P/E(ttm), de-rated hard from ~76x as the multiple compressed faster than earnings grew — inexpensive for a rule-of-60 compounder if execution holds.

Summary

Finding	Assessment
5-Year Stock Return	$110→$95 (−13%, and −55% from the $212 peak). TTM OP +255% ($1,300M→$4,613M). P/E de-rated ~102x→25x.
Business Model	Single-platform AI workflow orchestration. 97% subscription, 98% renewal. 8,800+ customers, 603 at >$5M ACV. 44% FCF margin.
Competitive Moat	AI THREAT AI agents bypass workflow interface (Computer Use). Per-seat pricing at risk. But 97% renewal, 95B workflows lock-in, model-agnostic AI Control Tower.
Past 5-YR Drivers	20%+ subscription CAGR, Now Assist raised to $1.5B target, platform expansion (IT→HR/CRM/Security), OM 4%→15%.
Recent Stock Move	~$212→~$95 (-55%) from peak; P/E compressed ~76x→25x. Fundamentals still strong: subscription rev +23% cc, cRPO +21.5% cc, non-GAAP OM 29.5%. The market de-rated the multiple, not the business.
Revenue Trend	DECELERATING Rev YoY: 24% (Q2 2026) → 20% (Q3 2026E).
Margin Trend	EXPANDING OM%: 29.4% (Q2 2026) → 32.5% (Q3 2026E).
TTM OP Trajectory	FLAT TTM OP QoQ: 5% (Q2 2026) → 4% (Q3 2026E). TTM OP $4.6B.
Key Opportunities	AI ACV crossed $1B (net-new +40% QoQ; path to $1.5B and 30% of ACV by 2030). Cybersecurity $1B+ (Armis+Veza). CRM $2B ACV. EmployeeWorks +150% QoQ. New AI-native no-tickets product + product-led “Fortune 500,000” motion.
Key Risks	De-rating/sentiment overhang — multiple compressed hard despite beats. Seat-compression as agentic AI displaces work (~50% of net-new already non-seat). Competition from CRM incumbents and AI agents bypassing the workflow layer. Lumpy federal/macro timing.
Catalysts	GA of the new AI-native no-tickets product + product-led motion. Raised FY26 guide (sub $15.76B/+21% cc, OM 31.5%, FCF 35%) and Q3 +20% cc. Cyber, CRM and HR scaling toward multi-billion. On track to $1.5B AI ACV.
P/E(ttm) Valuation	25x — heavily de-rated versus its own ~40–76x history and near cycle lows. Inexpensive for durable 20%+ growth plus margin expansion if the AI/agentic thesis converts to revenue. McDermott framing it as “the foundation for a re-rating.”

Q2 FY2026 Key Data (Apr-Jun 2026), reported 2026.07.22

Subscription revenue $3.88B (+23% cc, 150bps above high end); total revenue $3.99B; non-GAAP OM 29.5%.
cRPO $13.2B (+21.5% cc), RPO ~$29B (+22%); 123 deals >$1M net-new ACV (+40% YoY); 98% renewal.
AI ACV crossed $1B (net-new +40% QoQ); FY26 guide raised (subscription $15.76B/+21% cc, OM 31.5%).

Key Takeaways from Earnings Call

Beat-and-raise across every metric. Subscription revenue grew 23% cc (150bps above the high end), non-GAAP OM hit 29.5% (300bps above guide), and cRPO rose 21.5% cc (200bps beat). Management raised FY26 subscription guidance to $15.76B (+21% cc), OM 31.5%, and FCF margin 35%, reaffirming the “$32B revenue in 2030 at rule of 60+” trajectory.
The AI/agentic inflection is here. ServiceNow AI ACV crossed $1B with net-new AI ACV up 40% QoQ, keeping NOW on track to beat its $1.5B AI-ACV target by end-2026 and ahead of “AI = 30% of ACV by 2030.” Customers with agentic AI in production grew 9x over nine months; first-time agentic buyers rose 45% YoY. Deterministic, governed, action-taking AI is the differentiator.
Platform expansion into multi-billion adjacencies. Cybersecurity is now a $1B+ business (AI Control Tower + Armis device visibility + Veza identity) — the 8th-largest and fastest-growing in the enterprise. CRM is a $2B ACV business with NNACV accelerating YoY and QoQ (Sales CRM average deal size doubled). EmployeeWorks (Moveworks + workflows) deal volume grew 150% QoQ as the enterprise HR front door.
Forward: a business-model evolution. A new conversational, “no-tickets” AI-native service desk is coming via a product-led motion targeting the “Fortune 500,000,” expanding TAM beyond the enterprise. AI Action Fabric lets any agent (Claude, Copilot, or homegrown) tap governed enterprise actions. CEO McDermott framed the de-rated stock as “the foundation for a re-rating” on the path to the $32B-by-2030 goal.

Key Segments and Revenue Mix (Q2 FY2026)

Segment	Q2 2026 Revenue	% of Total	Key Details
Subscription	$3,877M	97%	+23% cc; AI ACV >$1B; cRPO $13.2B (+21.5% cc); 98% renewal; ~50% of net-new is non-seat-based.
Professional Services	$110M	3%	Partner-delivered; intentionally low-margin.

Key metrics: cRPO $12.64B (+21% CC). RPO $27.7B (+23.5% CC). Software ARR approaching $15B. Now Assist ACV target $1.5B. 630 customers >$5M ACV (+22%). Renewal rate 97%. $600B+ TAM. Key competitors: Salesforce, Microsoft, SAP. Acquisitions: Armis (security), Veza (identity), Moveworks (employee AI).

Business Model

PLATFORM

AI models (OpenAI, Google, Claude)
Hyperscalers (AWS, Azure, GCP)
Systems of record (SAP, Oracle)
Data lakes & identity systems

Integrations / Context →

SERVICENOW

AI Control Tower (orchestration)
Now Platform (ITSM, ITOM, HR, CRM)
Security (Armis, Veza, SecOps)
Workflow Data Fabric
$27.7B RPO, 97% renewal

Workflows / Outcomes → $ Revenue

CUSTOMERS

Global 2000 enterprises
Fortune 500 (85%+ penetration)
Government & public sector
Mid-market (ESM Foundation)
200M+ employees served

Moat Assessment: AI Threat

AI is eroding the workflow interface moat: AI agents with Computer Use can bypass ServiceNow’s orchestration layer and interact with underlying systems directly. Per-seat pricing faces structural pressure as AI reduces human users. Enterprises using Claude Code are building “good enough” internal workflow tools that threaten greenfield deals.
System of record lock-in remains deep for existing customers: 97% renewal rate. 22 years of enterprise context data (95B workflows, 7T transactions) cannot be replicated. A CIO described replacing ServiceNow as “at least 10x more expensive to even try.”
Platform breadth + open architecture = Switzerland position: Integrates with every major AI model, hyperscaler, and system of record. Model-agnostic, vendor-agnostic — the natural AI Control Tower. 50% of new business now non-seat-based (consumption/tokens).

Stock vs. Earnings — 5-Year Performance

Stock at $95 vs ~$110 five years ago — a −13% return. Yet it round-tripped: a $212 peak (late 2024) then back to ~$95 (−55% off that high). The de-rating — P/E ~102x→25x — not the fundamentals, drove the flat stock.
TTM OP grew from ~$500M to $4,613M (+295%). ServiceNow has consistently expanded margins while growing 20%+. Non-GAAP OP margin improved from ~25% to 32%. FCF margin at 44% is among the highest in enterprise software.
P/E(ttm) at 25x is the low end of its 5-year range. The stock peaked near 111x in late 2021 and has compressed to 25x today — even as the business kept compounding 20%+. Any re-acceleration could be a re-rating catalyst off a de-rated base.

Past 5-Year Key Drivers

Platform expansion from IT to enterprise-wide: ServiceNow evolved from ITSM to a horizontal platform spanning IT, HR, CRM, security, and AI orchestration. Each new workflow area expands TAM and cross-sell; 17/20 top deals included 7+ products.
AI as structural tailwind, not headwind: ServiceNow AI raised to a $1.5B target. Rising workflow volume drives more consumption; the Context Engine (95B workflows, 7T transactions) is a moat LLMs alone cannot replicate.
Margin expansion from AI-driven productivity: Non-GAAP operating margin grew from ~25% to ~32%. Autonomous agents resolve ~90% of internal IT requests; ~$500M internal productivity captured. Targeting rule-of-60+.

Quarterly Key Metrics

	Q2 2024	Q3 2024	Q4 2024	Q1 2025	Q2 2025	Q3 2025	Q4 2025	Q1 2026	Q2 2026	Q3 2026E
Quarter End	Jun 2024	Sep 2024	Dec 2024	Mar 2025	Jun 2025	Sep 2025	Dec 2025	Mar 2026	Jun 2026	Sep 2026
Stock Price	$158	$179	$212	$159	$206	$184	$153	$105	$99	$95
Stock QoQ	+3%	+13%	+19%	-25%	+29%	-10%	-17%	-32%	-5%	-4%
Rev YoY	22%	22%	21%	19%	22%	22%	21%	22%	24%	20%
OM%	27%	31%	29%	31%	30%	33%	31%	32%	29%	32%
R40 (Rev YoY + OM%)	50%	53%	51%	49%	52%	55%	52%	54%	53%	52%
TTM OP ($M)	$2,904	$3,100	$3,255	$3,417	$3,652	$3,920	$4,149	$4,395	$4,613	$4,800
TTM OP QoQ	+6%	+7%	+5%	+5%	+7%	+7%	+6%	+6%	+5%	+4%
FCF/OP ttm	106%	109%	105%	108%	105%	101%	110%	105%	99%	112%
Debt/EBITDA	0.6x	0.5x	0.5x	0.5x	0.5x	0.5x	0.4x	0.4x	1.3x	1.3x
P/E ttm	63x	67x	76x	55x	66x	55x	44x	28x	26x	25x

Recent Stock Performance & Drivers

Stock at $95 vs ~$105 in April 2026 — roughly flat but down ~55% from the $212 peak (Dec 2024). The de-rating reflects enterprise-software multiple compression and AI-disruption fears more than any deterioration in the business.
TTM OP has grown to $4,613M, with Q2 non-GAAP OM at 29.5% and free-cash-flow margin 16%. ServiceNow keeps expanding margins while growing subscription revenue 20%+ — the business has never been healthier even as the stock de-rated.
P/E(ttm) compressed from ~76x to 25x even as revenue kept growing 20%+ — the multiple fell faster than earnings rose (stock ~$212 → ~$95). CEO McDermott called this “the foundation for a re-rating.”

Opportunities

AI/agentic monetization crossed the $1B ACV mark. Net-new AI ACV grew 40% QoQ and agentic AI in production is up 9x in nine months. Management targets $1.5B AI ACV by end-2026 and AI at 30% of total ACV by 2030.
Land-and-expand is compounding across new platforms. Cybersecurity passed $1B+ (8th-largest, fastest-growing product; Armis+Veza), CRM reached $2B ACV, and EmployeeWorks/HR grew 150% QoQ — each riding the installed base.
Re-rating potential after a brutal de-rating. The multiple compressed from ~76x to ~25x even as revenue grew 23% cc and OM hit 29.5%. With durable 20%+ growth and expanding margins, McDermott is pitching a re-rating.

Challenges

A severe de-rating and sentiment overhang. The stock fell ~55% from a ~$212 peak to ~$95 and its multiple compressed hard despite continued beats. The market stays skeptical 20%+ growth and AI bookings convert into the acceleration the story needs.
Seat-compression and a pricing-model transition. As agentic AI displaces human work, per-seat licensing is at risk; management says ~50% of net-new is already non-seat/consumption-based. Usage pricing adds revenue-model uncertainty mid-transition.
Competition and lumpy federal/macro timing. CRM incumbents and AI agents could try to bypass the workflow layer. Some on-prem federal deals pulled from Q3 into Q2, and government/macro timing keeps bookings lumpy while long-term demand stays strong.

Next 12 Months

Execute the raised FY26 guide. Management lifted FY26 to $15.76B subscription revenue (+21% cc), 31.5% non-GAAP OM and 35% FCF margin, with Q3 at +20% cc growth and 31% OM. Delivering the raise is the near-term proof point for the re-rating case.
Ship the new AI-native, no-tickets product. ServiceNow is bringing to GA a conversational, no-tickets service-desk product plus a product-led “Fortune 500,000” motion and AI Action Fabric.
Federal and on-prem timing normalizes. With some on-prem federal deals pulled into Q2, the next few quarters should show the underlying government cadence more cleanly. Watch whether federal demand steadies as macro timing settles through the year.

Next 12-24 Months

AI scales toward 30% of total ACV. From the $1B+ AI ACV crossed this quarter, management targets $1.5B by end-2026 and AI at 30% of company ACV by 2030 as agentic deployments move from pilots to production across the installed base.
Cyber, CRM and HR each scale toward multi-billion. Cybersecurity ($1B+, Armis+Veza), CRM ($2B ACV) and EmployeeWorks/HR (+150% QoQ) are each on a path to become sizable standalone franchises beyond ServiceNow’s core ITSM platform.
$32B revenue by 2030 at rule-of-60. Management’s long-range target is ~$32B revenue by 2030 while sustaining rule-of-60 (growth + margin) — a rare mix of durable 20%+ compounding and expanding profitability.

Core Metrics Scorecard

	Q4'21	Q1'22	Q2'22	Q3'22	Q4'22	Q1'23	Q2'23	Q3'23	Q4'23	Q1'24	Q2'24	Q3'24	Q4'24	Q1'25	Q2'25	Q3'25	Q4'25	Q1'26	Q2'26	Q3'26E
Quarter End	Dec21	Mar22	Jun22	Sep22	Dec22	Mar23	Jun23	Sep23	Dec23	Mar24	Jun24	Sep24	Dec24	Mar25	Jun25	Sep25	Dec25	Mar26	Jun26	Sep26
R40 > 40%	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅
R40 accelerate					✅			✅				✅			✅	✅		✅
TTM OP QoQ > 10%					✅
TTM OP QoQ accelerate				✅	✅		✅	✅		✅					✅
TTM FCF/OP > 60%	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅
Debt/EBITDA < 3.5	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅
Total passes	3	3	3	4	6	3	4	5	3	4	3	4	3	3	5	4	3	4	3	3
Stock QoQ	+4%	-14%	-15%	-21%	+2%	+21%	+21%	-1%	+24%	+12%	+3%	+13%	+19%	-25%	+29%	-10%	-17%	-32%	-5%	-4%
P/E ttm	111x	91x	75x	56x	51x	57x	63x	56x	64x	65x	63x	67x	76x	55x	66x	55x	44x	28x	26x	25x

On the non-GAAP basis NOW clears R40 comfortably (~53% = ~24% growth + ~29% OM) — a reversal from the old GAAP framing where it looked sub-40%. The scorecard reads 3/6; R40 and Debt/EBITDA pass, and ServiceNow’s financial quality (strong FCF, low leverage) is impeccable.
The P/E de-rating from ~111x to 25x is the dominant feature. The stock went from pricing in 30%+ growth at ~100x to 20% growth at 25x. The business improved dramatically (TTM OP +255%) while the stock went nowhere — any re-acceleration could drive meaningful multiple expansion.

Chart: R40 vs Stock Price (Since 2020)

Chart: Scorecard Total Passes vs Stock Price (Since 2020)

Q1 FY2026 Key Data, reported 2026.04.22

Subscription revenue $3,671M (+22% GAAP, +19% CC), beat high end. cRPO $12.64B (+21% CC).
Pro+ adoption: 50% of new ACV. Agentic AI at 200+ customers. 97% renewal rate. 2,178 customers >$1M ACV.
Q2 guided at $3,810-$3,830M subscription revenue (+18.5-19% CC). FY2026 subscription $15.57B midpoint (+19.5% CC).

Key Takeaways from Earnings Call

AI Control Tower + Context Engine = 22 years of enterprise workflow data (95B workflows, 7T transactions) creating unmatched context advantage. Now Assist raised 50% to $1.5B target. Autonomous Workforce with 20+ AI specialist roles by May. Build Agent lets developers deploy from Claude Code, Cursor, Codex directly to ServiceNow. 50% of new business now consumption/non-seat pricing.
Security expansion is “going to be our Instagram”: Armis (OT/IoT visibility, 9/10 Fortune 10) + Veza (identity governance for AI agents) + ServiceNow (action layer for CISO) = unified end-to-end security stack. CRM growing 5x YoY. EmployeeWorks (Moveworks) doing more deals in Q1 than all prior year. “Five hyper-growth areas” each with capacity to eclipse current ServiceNow size.
Stock down 12% after-hours despite beat — investors questioning organic acceleration timing vs AI labs. CFO: “We rarely raise full-year guide after Q1.” Middle East on-prem deals delayed (~75bps headwind) but already closing in Q2. No broader spending slowdown. FAD May 4 will lay out long-range plan: revenue acceleration, margin expansion, SBC reduction to single digits, rule of 60+ target.

Source: SEC EDGAR annual and quarterly filings, company earnings conference calls and presentations.

Disclaimer: This report is for educational purposes only. NO investment advice.