ServiceNow – One SaaS Stock That Gets Better as AI Gets Bigger
Retention at 97%, RPO Accelerating, AI Revenue Tripling — The Disruption Narrative Has a Data Problem
ServiceNow is, without a doubt, one of the most out-of-favor stocks in the market today. Shares are down 54% over the past 12 months and 38% YTD, as the market continues to treat it as just another seat-based software vendor facing obsolescence in an agentic AI world. And while I believe the broader fears of a SaaS AI disruption aren’t unfounded, the narrative simply does not apply to ServiceNow, which is in a structurally better position than any of its SaaS peers.
In the meantime, the company continues to fire on all cylinders. NOW still delivers revenue growth in the high-teens to low-twenties, barely showing any slowdown. Furthermore, retention remains stable at 97-98%, order growth is healthy despite ME headwinds, AI revenues are real and impressive, margins continue to expand, FCF is best-in-class, and the balance sheet is healthy.
Really, the company is in excellent shape and continues to impress.
ServiceNow released its latest financial results in late April – its Q1 2026 report – and posted fairly strong Q1 results, even if not perfect, showing strong business momentum and minimal weakness, clearing Q1 consensus and issuing Q2 and FY26 guidance above estimates.
Additionally, earlier this month, NOW held its financial analyst day, providing much more detail on its longer-term vision and AI strategy, issuing blinding 2030 guidance and once again making the case that it will massively benefit from AI over the next several years, not be disrupted by it – a vision I completely share (I will get to that in great detail).
Overall, the Q1 results and the financial analyst day gave Wall Street analysts and me plenty of reasons once again to raise estimates through 2030, as NOW continues to outperform, already sees incremental AI revenue, and Agentic AI adoption significantly raises the long-term revenue opportunity, allowing the company to keep defying the rule of large numbers.
So, we have a company delivering impressive, unabated growth, strong guidance for the next 5 years, growing evidence that AI is a positive rather than a negative, and, consequently, an improving outlook. Yet shares are down 54% over the past year, dropping to their lowest valuation ever (despite little justification), and creating a huge disconnect between the share price and NOW’s fundamentals, driven purely by a market that punishes anything that’s SaaS amid a disruption narrative that does not apply to NOW.
That huge disconnect between the share price and fundamentals/performance is exactly what creates a huge opportunity today for long-term oriented investors – poor sentiment is putting this best-in-class software compounder on sale.
But don’t just take my word for it. Let me run you through the numbers, recent developments, and the AI opportunity/threat in detail, subsequently updating my own thesis and financial framework.
Is the NOW thesis falling apart, or is NOW truly becoming a generational buying opportunity? Let’s break it down!
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Financial & Performance Review
ServiceNow released its latest financial results on April 22 – let’s jump straight into the results.
Q1 revenue came in at $3.77 billion, beating the consensus by $20 million, with subscription revenue of $3.67 billion, up 19% in constant currency and above the high end of guidance. This marks a mild slowdown in growth compared to recent quarters, but overall, I think growth remains strong, mostly within the same range, which is especially impressive given that it includes a 75 bps headwind from delayed closings of several large on-premise deals in the Middle East due to the ongoing conflict in the region. If we exclude this, growth actually mildly accelerated from Q4, so business momentum remains strong.
This strong performance was also supported by an exceptional renewal rate of 97%, despite some dilution from the Moveworks integration. NOW’s renewal rate has consistently been in the 97-98% range in recent years, which is best-in-class, with barely any churn, no surprise given the mission-critical nature and deep integration of the software.
In fact, analysts estimate ServiceNow’s net retention rate is closer to 110-115%, which is very strong for its size. For reference, this number suggests that, even net of churn, ServiceNow can grow its top line by 10-15% through renewals of its existing customer base, driven by cross-selling, upselling, and growing platform usage. Adding new customers adds additional upside.
In this regard, ServiceNow remains absolutely best in class. And crucially, the reported gross retention rate of 97% indicates there is no sign of increased customer outflow amid AI adoption.
This strong business momentum was also evident in orders through RPO, which totaled $27.7 billion at the end of Q1, up 24% in constant currency (25% reported). This is a strong result, roughly in line with recent years, indicating no weakness in demand.
Bookings are outpacing delivery, which means the revenue runway is expanding. Think of it as the pipeline of guaranteed future revenue. The faster it grows relative to current revenue, the more visibility and confidence you have that the growth rate will sustain or even accelerate over the coming quarters.
But most importantly, if Agentic AI disruption were genuinely threatening ServiceNow’s core business, you would expect customers to sign shorter contracts, smaller commitments, or avoid multi-year deals entirely. RPO growing ahead of revenue is the opposite: customers are locking in larger, longer commitments, a revealed preference that enterprises are betting ServiceNow’s platform will expand in importance, not shrink.
So, a very strong indicator of healthy business momentum right there.
In more detail, management disclosed that it signed 16 deals with NNACV (net new annualized contract value) greater than $5 million and 5 with NNACV greater than $10 million. Additionally, it has 5 more customers crossing the $50 million threshold than last year. This highlights that NOW is signing larger and larger contracts through acquisitions and renewals, as customers adopt larger, more valuable contracts with NOW, spanning modules, add-ons, and multi-year.
In 2025, 91% of net new ACV came from deals with at least 5 products, up from 86% the year before. The company now has 630 customers generating over $5 million in ACV, while those generating $20+ million in ACV are up 3x since 2021.
Even more impressive, the average new logo ACV, so the average value of new customers joining ServiceNow, was up 50% YoY in Q1, meaning the customers ServiceNow is winning today are arriving with significantly larger commitments than those of a year ago, a clear signal that enterprises are no longer treating ServiceNow as a single-product purchase but as a strategic platform investment from day one.
Supporting this is constant platform expansion, with ServiceNow growing its platform at ridiculous velocity, mostly organically. Today, it is recognized as a leader across 33 software sub-segments, up from 8 in 2019. And this drives huge upside. Take CRM for example, a module that wasn’t there three years ago, which grew NNACV by 5x YoY in Q1, with total deals growing 80% YoY.
Another huge driver of higher NNACV is AI, which is already driving incremental growth for NOW, and the traction is sensational. In Q1, NOW Assist deals with 5 or more products grew 7.5x YoY, the number of customers spending $1+ million grew over 130% YoY, and deals over $1 million grew more than 30% year-on-year in Q1.
NOW Assist continues to far outpace expectations, now on track to generate $1.5 billion in pure AI revenue, which is an incredible ramp, adding incremental value to the average contract size.
And then there are the recent cybersecurity acquisitions, which are already driving sensational growth. This already adds $1 billion in NNACV, which grew organically by 40% YoY in 2025. And current NOW customer penetration of security is below 20%, so the runway for growth here is huge, especially as security becomes increasingly a must for enterprises. I anticipate rapid growth in security in the coming years, especially as every security alert, every remediation workflow, every identity governance decision that flows through the platform is a billable activity under the consumption model.
In other words, the more threats emerge, the more the platform earns. In an era of accelerating cyber risk and proliferating AI agents, that is a structural tailwind with no obvious ceiling, significantly expanding NOW’s TAM. I already addressed this in my prior coverage of NOW, but I really like the addition of Veza and Armis to the NOW platform.
There was also the Moveworks deal closing in late 2025, and that is showing sensational traction being integrated within NOW. Moveworks closed more deals in Q1 than it did in all of last year, growing 5x YoY.
Overall, NOW is clearly firing on all cylinders. Top-line growth is stable despite headwinds; retention shows no weakness and remains best-in-class; and underlying deal numbers are quite sensational, with contracts still growing larger, customers deepening their platform commitment, AI monetization accelerating well ahead of expectations, and recent acquisitions delivering good results and expanding the growth opportunity.
The market is selling the narrative. The results are telling a very different story. The two don’t rhyme.
On that note, let’s move to the P&L.
NOW reported a gross margin of 79.5% and a subscription gross margin of 81.5%, down 300 bps YoY, almost entirely attributable to the step-up in amortization of purchased intangibles related to the recently completed acquisitions of Veza, Armis, and Moveworks.
Further down the line, NOW nonetheless delivered healthy operating margin expansion of 210 bps to 32.7%, more than 50 bps above the high-end of guidance, driven by OpEx efficiencies. As highlighted below, NOW has consistently delivered healthy margin expansion over recent years, driven by growing operating leverage, with top-line growth quite consistently outpacing costs by a healthy margin.
However, there remains a notable discrepancy between GAAP and non-GAAP margins, which is a key bear argument. For reference, the Q1 GAAP operating margin was just 13.5%, with the gap almost entirely attributable to high stock-based compensation (SBC).
Q1 SBC was up 19% YoY in dollars to $558 million, growing roughly in line with revenue and accounting for just over 15% of revenue, down 30 bps YoY. But NOW has shown little progress on this front in recent years. Yes, SBC has dropped 300 bps over the last three years, but it has been roughly stable over the last 1.5 years, with NOW unable to bring SBC down further despite rapid top-line growth.
And I agree with the bears: this is a real expense.
Positively, management acknowledges the bear argument and is committed to bringing it down rapidly in the coming years. By 2029, management intends to reduce SBC as a percentage of revenue to below 10%, significantly narrowing the GAAP-to-non-GAAP gap, driven by revenue scaling and disciplined equity practices, while also slowing headcount growth.
While I am still no fan of the excessive SBC, I do appreciate management addressing the issue. Sub-10% by 2029 is a solid target.
In the meantime, management is offsetting the SBC headwind for shareholders by rapidly buying back its own shares at attractive levels. In Q1 alone, management executed a $2 billion accelerated program, buying back nearly 2x as many shares as in all of 2025. Driven by these rapid repurchases and a remaining $4.2 billion authorization, dilution will be net neutral in 2026.
All in all, I don’t think this is a thesis-breaker, although it should be accounted for when valuing shares.
Finishing up the results, NOW delivered a non-GAAP EPS of $0.97 in Q1, in line with the consensus, and a GAAP EPS of $0.45, roughly flat YoY.
And finally, NOW reported a Q1 FCF of $1.67 billion, reflecting a 44% FCF margin, down 350 bps YoY. The decline was driven by the timing of collections and increased investments. The collection timing is a normal quarterly fluctuation. Regarding investments, the relatively large $7.8 billion acquisition of Armis came with a $4 billion term loan maturing in October 2026, which carries interest costs that flow through to FCF. Additionally, integrating a newly acquired business of that scale introduces near-term cash outlays, such as transition costs, infrastructure integration, and people, before the revenue and efficiency benefits materialize, which is reflected in this lower margin. Management expects margins to return to their normal trajectory by 2027.
Yet, despite the margin pressure, NOW’s margin remains exceptional. The TTM margin still sits at 33%, which is very strong, making NOW as Rule of 50+.
Despite the lower FCF margin and the accelerated repurchase program, NOW maintained a very strong balance sheet. The company ended the quarter with $5.2 billion in cash and short-term investments, and long-term debt of just $1.5 billion, leaving it in a strong net cash position with ample liquidity.
On a final note, ServiceNow’s reinvestment metrics are also healthy. As of Q1, LTM ROE is 16.1%, and LTM ROIC is 14.5%, trending up and ahead of WACC.
Really, NOW delivered an excellent Q1.
So, let’s then address the elephant in the room – AI disruption.
ServiceNow & AI – Disruption or opportunity?
As briefly noted in the introduction, the AI disruption narrative for SaaS has dominated for most of the past year – it’s the primary reason ServiceNow is down more than 50% over that period despite delivering strong numbers quarter after quarter.
Crucially, that fear is not entirely a stretch for SaaS in general.
First of all, seat-based pricing is structurally exposed. While this model worked brilliantly over the past two decades, it is being challenged in the AI era, as seats are likely to collapse amid AI-driven automation. Customers are already reducing software seats rather than adding them, as AI-enhanced workers accomplish more with fewer licenses, per Bloomberg. IDC predicts that by 2028, pure seat-based pricing will be obsolete, with 70% of software vendors having to refactor their pricing strategies around consumption, outcomes, or organizational capability. That is a radical and rapid structural transition for an entire industry, and that might not work out for all players.
Second, instead of navigating multiple dashboards, users will increasingly interact with agent-driven conversational interfaces that perform tasks across systems, with workflows orchestrated behind the scenes. AI becomes the new interface layer, abstracting away complexity and redefining how enterprises consume software. If users stop interacting directly with a SaaS application because an AI agent handles it for them, the application’s switching cost collapses. The moat was always the user habit, but an AI intermediary layer breaks that habit entirely, and the underlying software becomes a commodity backend that could, in theory, be replaced. Think Salesforce.
Third, AI coding tools lower the build-vs-buy threshold. AI coding tools enable organizations to build custom software more easily, directly threatening the SaaS vendor’s value proposition for simpler, more standardized workflows. If a mid-sized enterprise can now spin up a functional AI-native task management tool in days rather than months, why pay $50 per seat per month for Atlassian Jira? The build-vs-buy calculus shifts meaningfully for anything that is not deeply complex or compliance-sensitive, think platforms like Atlassian or Monday.com.
Across these three factors, the threat is real, and the sell-off is justified for certain categories and businesses.
However, I am very confident this disruption narrative does not hold up for ServiceNow, not even close.
ServiceNow sits in a structurally much stronger, more complex, more defensible, and harder-to-disrupt position. Instead of being disrupted, I believe ServiceNow is well-positioned to be a major beneficiary of enterprise adoption of Agentic AI, as this will significantly expand its TAM and make its software even more irreplaceable.
Agentic AI adoption is poised to explode over the next decade. Today, almost four in five enterprises have adopted AI agents in some form, yet only one in nine runs them in production. However, current estimates indicate that 50% of organizations will deploy autonomous AI agents by 2027, enabling 15% of day-to-day work decisions to be made autonomously.
By 2029, AI agents are expected to resolve 80% of common customer service issues without human involvement, according to Gartner. 93% of IT leaders plan to introduce autonomous agents within the next two years, and 89% of CIOs consider Agentic AI a strategic priority, focusing on automation, decision-making, and enterprise orchestration – remember this last one.
As a result, the global Agentic AI market is projected to reach $139 billion by 2034, growing at a CAGR of approximately 40%, a roughly 19x expansion from 2025 levels. Grand View Research puts the figure higher, projecting $183 billion by 2033 at a CAGR of nearly 50%.
Without a doubt, Agentic AI is the future.
However, there is an ROI bottleneck. Every software vendor has built their own AI — Microsoft has Copilot, Salesforce has Agentforce, SAP has Joule, and Google has Gemini for Workspace. And that’s before you account for the dozens of point-solution AI tools that individual departments are buying independently, such as AI for legal contract review, AI for financial forecasting, AI for HR screening, and AI for customer support.
Within three to five years, a typical Fortune 500 company will have dozens of AI agents running across its organization, built by different vendors, trained on different models, with different governance policies and different data access rights.
And that creates chaos – an acute coordination problem – as each one is smart in its own domain, but blind the moment work crosses into another system. Who decides which agent handles which task? What happens when two agents give conflicting recommendations? How do you audit what an AI agent did when something goes wrong? How do you prevent an agent in one department from accessing data it shouldn’t? None of the individual AI vendors has an incentive to solve this. They each want their own agent to win.
In other words, AI still needs a neutral orchestration layer to coordinate among them, prevent conflicts, and ensure they operate within the rules.
That is where ServiceNow comes in, as the orchestration layer. NOW is positioning itself not as a model provider, not as a point solution, but as the platform that tells all the AI agents what to do and connects intelligence to execution across every business workflow, not that different from what it has always done.
Basically, the idea is that enterprises used to need ServiceNow to coordinate humans across systems. Now they need ServiceNow to coordinate AI agents across systems. The problem grew bigger, the platform became more valuable, and the revenue opportunity grew multiple times over as AI agents operate 24/7, work much faster, and execute many more tasks.
And the more autonomous AI becomes, the more critical the control layer becomes. This is a self-reinforcing dynamic: AI capability growth increases the value of ServiceNow’s governance layer, rather than threatening it. Without it, AI agents running across an enterprise create chaos rather than efficiency.
But, the obvious question “why ServiceNow?”
The key here is where ServiceNow already sits within the enterprise IT stack today. The company already sits inside 85% of the S&P 500 and 90% of the Fortune 500 IT stacks as an orchestration platform in the most critical and cross-functional processes in the enterprise, including IT workflows (like ITSM and ITOM), employee workflows (like IT operations and HR), customer workflows (CRM), and, as of recent years, data workflows and cybersecurity. That history is what separates them from any competitor trying to build the same thing from scratch today. The level of existing integration, trust, and interoperability gives it a massive edge.
Especially the latter is critical – interoperability. ServiceNow is intentionally neutral and system-agnostic. As a “platform of platforms,” it integrates with any data supplier, cloud provider, or LLM, whether Salesforce, SAP, Oracle, Microsoft, Google, OpenAI, Gemini, or Anthropic.
For example, large enterprises run dozens of separate software systems. SAP for finance, Salesforce for customers, Workday for HR, Snowflake for data warehousing, Slack, SharePoint, and on and on. Each tool has its own language, rules, and governance. ServiceNow’s data fabric – already counting 4,000 customers and processing 3 billion tokens per month – connects data across systems, adds business context via a unified data catalog, and applies policy-based governance controls, so AI understands how your company works and can take trusted action.
More broadly, ServiceNow frames it as Connect, Understand, and Act. First, connect to any system through 200+ out-of-the-box connectors. Second, enrich and contextualize that data using a knowledge graph that translates raw data into meaningful, actionable insights. Third, automate. AI agents and workflows can then not only read from those data sources but also update them in real time.
Finally, AI agents in the agentic era don’t just answer questions; they take action. They create tickets, approve requests, trigger purchases, escalate incidents, notify people, and update records. For an agent to take those actions reliably, it needs to understand the workflow context, including what came before, what the approval chain looks like, what the compliance constraints are, and what the downstream consequences will be.
ServiceNow owns workflow context more completely than any other enterprise software vendor, already operating across workflows and learning from 100 billion workflows and more than 7 trillion transactions that run through the platform annually. This is the compounding moat. Every workflow that runs through the platform teaches ServiceNow more about how that specific enterprise operates, including its approval hierarchies, escalation patterns, exception handling, and compliance constraints.
ServiceNow simply sits in a brilliant spot to be the orchestration layer, whether today or in the Agentic future, already integrated, already running across nearly every IT workload, and working with any third-party provider — a position that takes decades to build.
Ultimately, it boils down to this: Agentic AI adoption is not a threat to ServiceNow, but the single biggest demand driver the company has ever seen. Every new AI agent deployed across the enterprise is another reason to need the platform that coordinates, governs, and connects them all. ServiceNow does not need to win the AI model race. It just needs to remain the infrastructure layer that every winner runs through. And with two decades of workflow data, 90% Fortune 500 penetration, and the only neutral orchestration platform operating at enterprise scale, that position is not up for debate.
That then brings us to the economics of it all. Because NOW is not only not getting disrupted but also seeing its revenue potential grow exponentially through Agentic AI adoption.
But first, it is worth noting that the seat-based model threat is increasingly neutralized by NOW. For one, management stated that even if 50% of its addressable seats were to disappear through automation (which is unlikely), NOW’s room for growth would remain massive. For reference, monthly active users or seats grew by 25% in Q4, which is still exceptionally strong given the large base. Furthermore, NOW estimates that available seats in its target market alone total an estimated 1.3 billion, so it is barely scratching the surface. In other words, the potential impact is grossly overestimated.
But more importantly, NOW already uses a hybrid business model, employing usage-based billing for certain AI features to deliver additional value beyond seats while largely maintaining cost predictability for customers with seat-based licensing. Today, over 50% of NNACV already comes from non-seat-based pricing, including tokens and other assets such as infrastructure, hardware, and connectors.
In other words, the seat-based bear argument is practically non-existent here. Within new contracts and renewals, NOW uses subscription commitments paired with usage-based meters, giving customers predictability and flexibility to expand.
That then brings me to the growth opportunity, which is massive. The idea is simple:
Agentic AI runs on a usage-based model. This means orchestration isn’t about how many people use a system, but about how many workflows and agents run through it. As AI agents proliferate across the enterprise, every workflow they execute, every cross-system action they take, every governance decision they trigger passes through ServiceNow’s platform. That activity is billable under consumption pricing in a way it never was under seat licensing.
In other words, while the seat-based model slowly erodes, the usage-based billing that replaces it creates far more value. Management gave the following example:
“If you had a team of 20 support analysts today, the team would cost over $1 million annually. About 90% of that is labor, 2% is ServiceNow. Now, what happens when you move into an agentic AI world? As enterprises look for efficiency, they’ll naturally target their largest cost center, labor. ServiceNow’s autonomous AI agents can resolve 75% of the team’s work, reducing the necessary headcount to just 5.
Let’s look at IT incident management, just one use case within ITSM. We see over 100 million incidents per month on the ServiceNow platform today. If 75% of those incidents can be processed by an autonomous workforce, this translates into a $3.5 billion ACV opportunity net of any seat licenses that go away.”
So, fewer seats but greater value under this hybrid model. Net of the reduction in seat-based revenue, ServiceNow spend is 5x higher for the same actions as before under the seat-only model, while the cost to get that work done for the customer also drops by 65%.
In other words, Agentic AI running the same tasks under the new usage-based model grows NOW’s revenue potential by 5x while keeping the same customers and usage. Of course, scaling that will be gradual and slow initially, but that is an incredible long-term opportunity.
And the initial adoption ramp looks good. Management noted that Now Assist users (AI users) who renewed their contract in 2025 grew their ACV by an average of 3x, as customers rapidly expand Now Assist adoption across multiple workflows. Early data suggests that by year 5, AI customers spend 4.5x their initial Assist commitment, which is extremely promising.
That rapid adoption already allowed management to raise their FY26 Now Assist target from $1 billion to $1.5 billion, as adoption outpaces expectations. And remember that NOW’s renewal rate remains in the 97-98% range.
Meanwhile, it is still a hybrid model, with a set commitment and then usage layered on top. Positively, the set commitment is also considerably higher than before, thanks to NOW’s new AI-native packaging. To quote management, “Every new SKU has a bundle of tiered capabilities across the core product AI, Workflow Data Fabric, Moveworks, and/or AI Control Tower. As our customers purchase higher-value bundles, we expect an average price lift of 20% to 30%.”
In other words, even before a single AI agent runs a single workflow, ServiceNow’s customers are already paying meaningfully more than they were before, simply by upgrading to the new AI-native bundles. The consumption layer on top is pure upside.
To conclude, the SaaSpocalypse selloff treated ServiceNow as just another SaaS casualty — it is anything but. While thin point solutions face genuine existential pressure, ServiceNow sits at the opposite end of the spectrum: deeply embedded in the most critical workflows across 90% of the Fortune 500 and uniquely positioned as the coordination layer that makes enterprise AI actually work at scale and generate strong ROI.
The disruption narrative simply does not apply here. If anything, it inverts. Every AI agent deployed, every model adopted, every vendor added to the enterprise stack makes the orchestration layer more necessary, not less. And with a business model that now scales with AI usage rather than headcount, ServiceNow’s revenue opportunity grows in direct proportion to the very trend the market is using to justify selling it.
Ultimately, I view NOW as a long-term winner, with a huge long-term revenue opportunity as Agentic AI scales.
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Outlook & Valuation
As always, let’s start with NOW’s own guidance.
For 2026, management now expects to deliver subscription revenues between 15.735 billion and $15.775 billion, with the midpoint raised by $205 million from prior guidance. This reflects an expected YoY growth of 20.5-21% in constant currency, or a growth acceleration in the remaining three quarters, up from 19.5% in Q1. This includes a 125-bps YoY contribution from Armis, but even excluding it, growth remains strong in the 19-20% range.
Nonetheless, the guidance was slightly disappointing to investors, given the minimal raise in guidance, which can ultimately be largely attributed to completed acquisitions. However, the only reason management didn’t hike guidance more is the uncertain impact of the ME conflict and subsequent deal timing, with management keeping its very cautious stance.
Yet, taking into account management’s raised expectation of $1.5 billion in AI revenue in 2026, up from a prior $1 billion, I expect the current FY26 guidance to be extremely conservative – I expect a larger hike after Q2.
On the bottom line, management now guides to a FY26 subscription gross margin of 81.5% (down 200 bps) and an operating margin of 31.5% (flat YoY), including 25 bps and 75 bps headwinds from the Armis acquisition, respectively. Again, this seems conservative given the Q1 result and expectation for easing margin pressure in H2.
Finally, management expects a FY26 FCF margin of 35%, flat YoY, including a 200 bps headwind from Armis. Regarding Armis, management expects margins to normalize in 2027 and beyond.
Long-term, management issued very bullish guidance during its Financial Analyst Day. Given its AI positioning and the significantly expanding revenue opportunity amid Agentic AI adoption in the coming years, management sees a clear path to 30% of ACV to be pure AI revenue by 2030, meaning AI usage and incremental subscription add-ons on top of the core workflows, reflecting an expected minimal $9 billion AI ACV, or a 56% CAGR from 2026-2030.
Driven by this AI momentum, management now guides to at least $30 billion in revenue in 2030, more than doubling from 2025 levels. In fact, management sees room for revenue to exceed $32 billion under stable macro conditions, suggesting a 20% revenue CAGR, and that might still be management being cautious. It estimates that its cybersecurity, data, and AI workflows will compound at a 25% CAGR through 2030, which could lift total revenue toward that level as well. Also, guidance sufficiently bakes in a deceleration in mature workflows, so management really doesn’t seem to be pricing in heroics.
On the bottom line, management is equally optimistic, with CFO Mastantuono arguing that AI is structurally expanding ServiceNow’s margins, with AI reasoning accounting for less than 10% of the cost to serve, as NOW feels only a minimal impact from inference costs. This should keep the subscription gross margin firmly above 80%.
Meanwhile, management is also seeing incremental internal savings from AI implementation, flattening the hiring curve. Management expects $200 million in annualized savings in 2026, on top of $100 million in 2025. These gains should allow for normalized margin expansion in 2027 when combined with easing acquisition headwinds and minimal costs from growth in Now Assist. In practice, NOW targets 100 bps of operating margin expansion and 100 bps of FCF margin expansion in 2027
So, NOW is targeting a 20%+ revenue CAGR through 2030, with growth unlikely to ease as we approach 2030, and it sees strong margin expansion in 2027 and beyond thanks to its capital-light business model. Therefore, management expects to be a Rule of 60+ by 2030, combining a 20%+ growth rate with a FCF margin approaching 40%. Net of dilution, that will still be a Rule of 50+, which is quite sensational if realized.
Now, CEO McDermott is absolutely a salesman, one of the best on Wall Street, but that does not change the fact that NOW has historically delivered on its financial promises and has a track record of guiding conservatively while blowing past targets, both near-term and long-term.
Sure, we should take long-term guidance with a grain of salt, but looking at NOW’s results so far, particularly AI adoption, its operational numbers (RPO, retention), and its track record, we absolutely shouldn’t dismiss it. Honestly, I see little to argue against it.
Jumping to my own forecasts, I am raising my 2026 revenue estimate to $16.28 billion ($16.04 billion prior), reflecting 22.5% YoY growth. This includes the recently completed acquisitions and total subscription revenue just above the high end of management’s guidance, as I expect this to be raised post-Q2, given current business momentum and strong growth in AI revenue. On the bottom line, I expect some margin contraction this year due to higher acquisition-related costs and higher computing spend, resulting in an EPS of $4.18 ($4.25 prior).
Looking ahead, going by management’s guidance and business momentum, I expect NOW to maintain a revenue growth rate in the high-teens to low-twenties through 2029, driven by agentic AI adoption, the shift to usage-based pricing, and strong customer retention – the growth drivers have been extensively discussed. Therefore, I believe NOW can achieve 2030 revenue exceeding $32 billion, with my base-case estimate at just under $33 billion.
On the bottom line, margins should normalize in 2027 as headwinds ease, allowing NOW to deliver steady margin expansion through 2029, driven by strong operating leverage. I believe this should translate into a low-twenties non-GAAP EPS CAGR.
These assumptions are all reflected in the updated financial model below.
That brings me to valuation, and with shares down 54% over the last year and nearly 40% YTD, despite the company delivering excellent financial results and strengthening the medium-term outlook, these have become much cheaper than ever before.
At a current price of roughly $95, shares trade at:
Just under 23x 2026 earnings
A PEG of roughly 1.1x
47x the 2026 GAAP EPS consensus
18x 2026 FCF
I can be straightforward here: these multiples are extraordinarily low for a business of ServiceNow’s quality. A 23x non-GAAP earnings multiple for a platform growing revenues at 20%+ with a 97-98% renewal rate, a mid-thirties FCF margin, and a very strong outlook with a credible path to doubling revenue over the next 5 years is simply not a valuation that reflects the underlying reality of the business.
What it reflects is peak skepticism and a market focused on a disruption narrative that simply doesn’t apply to ServiceNow.
At current prices, the market is essentially pricing in permanent disruption for a platform that is becoming more deeply embedded in enterprise infrastructure with every passing quarter. That is a fundamental mispricing, in my view, and one that long-term investors will look back on as one of the more obvious opportunities created by the AI disruption narrative.
ServiceNow is not a SaaS company at risk of being automated out of existence. It is the automation layer itself, and at 18x FCF for a business with this quality, this growth rate, and this strategic positioning, the risk-reward is as compelling as anything in enterprise software today.
However, the key question for valuation is not whether ServiceNow deserves a premium multiple (it clearly does), but what the right catalyst for re-rating looks like and how long it will take, similar to what we saw for Datadog just last week.
In my view, the re-rating has three triggers. The first is continued evidence that AI monetization is real and accelerating, as evidenced by the $1.5 billion Now Assist ACV target and the 3x renewal expansion data. If management can continue to demonstrate that AI is creating significant upside, the market can’t help but give it the credit it deserves.
Second, a strong renewal rate and order momentum. If NOW maintains a renewal rate in the 97-98% range and RPO continues to outpace revenue growth, the market should have all the evidence it needs that AI is not eating into demand. Management reporting net retention could be an immediate catalyst. Third and finally, margin normalization in 2027 as cost headwinds ease and NOW proves that it remains capital-light.
None of these requires heroics.
Nonetheless, we shouldn’t act on the assumption that NOW can return to historical multiples, as the thesis is fundamentally different and growth is slowing compared to recent years. But I do see significant room for shares to rerate once sentiment improves, and the AI thesis gains momentum.
Say we apply a 25x (non-GAAP earnings) 2029 exit multiple, which I believe is still extremely conservative. If NOW can achieve its targeted Rule of 60 status by 2030, the company can easily trade at a 30-40x multiple. However, let’s be on the conservative side, given that NOW still has to prove itself — using the 25x multiple, I calculate an end-of-2029 target price of $191, representing more than 100% upside from current levels.
Now, I already know many of you will raise the SBC argument, and I agree it should be accounted for as a real expense, even if dilution is offset by buybacks. However, even if we take GAAP EPS, which includes SBC, NOW looks very compelling. Assuming management’s 10% SBC target for 2029, I estimate a 2029 GAAP EPS of $4.97. If we apply a 30x exit multiple, which, again, is plenty conservative, I calculate an end-of-2029 target price of $149, still reflecting 57% upside.
Taking the midpoint of the two, I set my 2029 target price at $170. From a current share price of $95, this implies annualized returns of just under 17%.
Considering that it is based on very conservative assumptions, this is an excellent risk-reward, in my opinion, with price levels providing plenty of downside protection and loads of additional upside. Under more bullish assumptions, this one can return more than 30% annually and become a multi-bagger by 2030, by my calculations.
Below $100, I view NOW as an excellent buy. If shares drop below $84 again, I will be adding aggressively to my already sizeable position.
Rating + fair value: Buy - Accumulate below $100
2028 Target Price: $170
Implied CAGR from current price: ~17%
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Thanks for a great write up