ServiceNow – Oversold on a False Narrative, Now a Bargain!
Down 48%, fundamentals fully intact, and now poised to deliver 24% annualized returns under conservative estimates!
Back in August 2025, I called ServiceNow “One of the Best Tech Stocks to Own for the Next 10+ Years”. Why?
In a nutshell, this Enterprise software giant combines exceptional business quality with a uniquely strategic position inside the enterprise. The company operates a deeply integrated workflow platform that sits at the center of how work is created, routed, approved, and executed across IT, HR, customer service, and operations, effectively acting as the system of record for enterprise work. This means ServiceNow is embedded not just at the interface level, but in the data layer, the underlying logic of how organizations actually function day to day.
This makes it extremely mission-critical infrastructure, and this depth of integration drives very high switching costs, consistent net expansion, and strong pricing power, resulting in durable 20%+ revenue growth, ~98% customer retention, and best-in-class free cash flow generation.
With a large, still underpenetrated market and a proven land-and-expand motion, ServiceNow remains a high-quality compounder with a massive runway ahead, with room to maintain a minimal high-teens growth rate well into the 2030s, especially given it is a leading candidate to become the default agentic AI orchestration layer for the enterprise, which provides it with a generational growth opportunity.
In other words, this is a mission-critical, deeply embedded software business that checks every box of a long-term compounder.
However, since that August analysis, NOW shares have lost 33% of their value, yet my view of ServiceNow hasn’t changed. Fundamentals have only grown stronger, and financial forecasts for the next 5 years haven’t weakened, not mine nor those from Wall Street.
The result? NOW shares have become significantly cheaper.
Fueling the sell-off in NOW shares isn’t company-specific; it’s a broader industry trend. Nearly all enterprise software stocks have sold off massively over the last few months, with industry-specific funds even officially entering a bear market, now down more than 20% from recent highs.
This is driven entirely by worsening sentiment, fueled by the undercooked narrative that “AI will kill SaaS” and by fears that Europe will move away from U.S. software over time, given recent developments.
Let me be clear right away: this is a complete overreaction lacking foundation, especially when it comes to NOW, which sits in the prime position to benefit from AI, not be disrupted by it – NOW being disrupted by AI is a completely false narrative. In fact, I will continue to argue that Agentic AI is a generational opportunity for NOW (which I will explain again later on)!
Therefore, I view current prices as a rare, sentiment-driven discount and a compelling opportunity to acquire shares in one of the world’s leading Enterprise Software companies, which remains well-positioned for strong growth over the next 5-10 years.
This discount won’t last once the panic subsides, and the street recognizes that ServiceNow won’t be disrupted by AI but will be strengthened by it, opening the door to share price returns not just from strong earnings growth but also from multiple expansion.
Against this backdrop, I have increased my NOW position by over 50% in the last month alone, making it a top-5 holding in my portfolio. This is still one of the best stocks to own for the next 10-years.
Today, I want to update my NOW investment thesis by reviewing its Q4 financial results, released last week, analyzing the impact of AI on its business model, and ultimately revising my financial forecasts and fair value estimate.
Without further ado, let’s delve in!
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ServiceNow delivers an exceptional Q4
ServiceNow released its fourth-quarter results last Wednesday, January 28, and delivered an excellent report, with both top- and bottom-line results exceeding the Wall Street consensus and my own forecast. The company exceeded guidance on every metric, maintained 20%+ growth, accelerated RPO growth, delivered healthy margin expansion, and reported a 35% FY25 FCF margin.
In other words, the company delivered an excellent performance across the board, which shouldn’t come as a surprise.
Starting at the top, NOW reported a total Q4 revenue of $3.57 billion, up 21% YoY and surpassing Wall Street estimates by $40 million, which isn’t a large beat at all, but this comes after NOW already raised guidance multiple times throughout the year.
More importantly, Q4 subscription revenues were $3.5 billion, up 21% YoY, notably better than expected and exceeding guidance by 150 bps. Yes, as shown below, this is a further slowdown relative to recent quarters, but it is to be expected as NOW is increasingly facing size headwinds. The fact that growth remained above 20% and slowed only marginally from recent quarters is fairly impressive.
Underlying, the company is also firing on all cylinders, as demand remains very strong, showing no signs of weakness, resulting in NOW continuing to sign large contracts. Notably, net new ACV (Annual Contract Value) growth accelerated both quarter over quarter and year over year in Q4. This tells us that demand for ServiceNow’s platform is not only resilient but also accelerating, with both new customer wins and expansion activity remaining healthy despite the company’s growing scale.
For reference, net new ACV reflects the incremental annualized contract value added in a given period, driven by new customer wins and expansions within the existing customer base, net of churn, and is therefore a forward-looking indicator of underlying demand and future revenue growth.
Its growth engine remains intact, with no loss of momentum. The fact that growth here accelerates is massive, going against any arguments of market erosion – NOW isn’t slowing down but accelerating.
A major contributor is customer acquisition, which remains strong. New logo ACV in EMEA and Japan grew by 30% YoY, and total logo net adds in 2025 accelerated from 2024. Indeed, total customer growth in 2025 was stronger than in 2024 (5% vs 4%), which is impressive given NOW’s size. The company ended 2025 with 8,800 customers, of which 603 generate over $5 million in ACV, up 50% over the last two years.
That brings me to the second and even stronger driver of growth, net expansion. NOW has been rapidly growing its platform over the last few years. It has expanded from leading in 6 IT verticals in 2019 to 33 today and has released a staggering 6,000 features in the last 12 months alone, demonstrating remarkable platform innovation.
The direct result is that customers adopt more modules in their contracts. For reference, 86% of customers now adopt 5 or more modules, up from just 65% in 2020. As shown below, this is driving gradual growth in average contract size. And this leads to considerable growth for NOW, as it can derive greater value from each of these 8,800 customers.
And as this total customer number continues to grow steadily, NOW benefits from a powerful dual growth engine.
In Q4, NOW signed 244 deals with an ACV greater than $1 million and signed 7 deals greater than $10 million. CRM ACV growth continues to accelerate, posting its largest quarter ever, and RaptorDB Pro ACV more than tripled YoY.
ITOM ACV grew nearly 50% YoY and was included in 17 of the top 20 deals, and security and risk were included in 19 of the top 20 deals, driving 40% growth in ACV YoY. And finally, creator workflows were included in 19 of the top 20 deals.
So, now is delivering strong growth across most modules, as adoption continues to grow. Again, NOW’s growth engines show no signs of weakness. As both adoption and customer acquisition improved YoY, it accelerated net-new ACV and demonstrated strong business momentum, providing no cause for concern.
This strong contract momentum also led to healthy growth in RPO (remaining performance obligations), which is the total value of contracted revenue not yet recognized and to be realized in future periods. NOW ended the quarter with an RPO of $28.2 billion, up 27% YoY, a solid uptick from Q3.
In practice, what this suggests is that ServiceNow is successfully locking in long-term customer commitments at an accelerating pace, providing strong visibility into future revenue growth and reinforcing the durability of its underlying demand.
Finally, cRPO grew 25% YoY, 200 bps ahead of guidance, with a 100 bps contribution from the Moveworks acquisition.
Let’s then move to the P&L.
ServiceNow reported a gross margin of 82.5%, down 200 bps YoY, primarily due to higher computing costs included in cost of revenue, which are directly linked to data center costs amid growing AI usage. This will likely be a persistent headwind in the near future.
Positively, NOW was able to offset this gross margin decline through excellent cost control and increasing operating leverage. For reference, Sales and marketing and R&D grew notably slower than revenue, at 12% and 16%, respectively. Additionally, AI is driving significant cost efficiencies and generating additional upside.
As a result, NOW grew its operating margin by 180 bps YoY to 31.3%, exceeding management’s guidance by 100 bps, driven primarily by revenue outperformance.
This brought the FY25 operating margin to 31%, up 150 bps YoY.
Ultimately, this led to 26% YoY EPS growth, slightly outpacing revenue, resulting in an EPS of $0.92 that beat consensus by $0.03.
Finally, NOW’s FCF was sublime. Its FCF margin in Q4 hit 57%, up 950 bps YoY, driven by store collections, lower CapEx, and significant operating leverage.
This brought the FY25 FCF margin to an exceptional 35%, up another 350 bps YoY and 100 bps ahead of already raised guidance (300 bps ahead of start of the year guidance). This resulted in total FY25 FCF of $4.6 billion, up 34% YoY.
Also, this makes NOW a Rule of 55 company for 2025, a feat few peers can match at this size.
These strong cash flows allowed NOW to end the year with a pristine balance sheet, containing just over $10 billion in cash and under $2.5 billion in debt.
This excellent financial health and strong cash generation have also enabled it to continue returning cash to shareholders through share repurchases. In Q4, it repurchased 3.6 million shares, leaving $1.4 billion remaining under its existing authorization.
However, acknowledging that $NOW shares are currently cheap, the board has authorized an additional $5 billion for repurchases and will launch an accelerated $2 billion share repurchase program to buy back shares at current, very attractive prices.
This is what I love to see. Two things matter here. One, with this accelerated program, management is very clearly indicating that it believes its shares are cheap and undervalued, which is rare. Second, I believe this to be a great use of cash. Too many companies start buying back shares when they are expensive. NOW is now allocating more cash to buying back shares at depressed levels, significantly enhancing value and ROI.
So, very much a positive!
On a final note, SBC also continues to retreat. SBC as a percentage of revenue was 14.7% in 2025, down from 15.9% in 2024. That is still high, and SBC dollars still grew 12% YoY in 2025, but the trend is positive.
All in all, this was another excellent quarter for ServiceNow, as top-line momentum remained unabated and operating leverage drove strong cash-flow growth. Honestly, I don’t think investors could have wished for much more.
There most certainly is no reason here to justify the post-earnings sell-off, or the 33% share price slump in recent months, for that matter. When it comes to performance and financials, this business is firing on all cylinders!
Instead, the sell-off is largely driven by widespread misconceptions.
Two Investor concerns debunked – AI Disruption and an Acquisition Spree
ServiceNow’s recent share price weakness appears to be driven by two dominant narratives: fears that AI will disrupt enterprise software incumbents and unease about the company’s recent acquisition activity. While both concerns sound plausible on the surface, they do not hold up under closer scrutiny.
In reality, neither AI nor ServiceNow’s acquisition strategy undermines the long-term investment case. On the contrary, both reinforce it.
Let me explain by breaking them both down!
AI disruption is a false narrative
Starting with AI, disruption fears center on two main concerns: SaaS platforms becoming irrelevant and a loss of seats as AI agents replace humans, which would limit growth under the widely used seat-based revenue model.
I can tell you both of these are misunderstood and overblown.
Let’s start with the risk of irrelevance, which stems from the fear that AI could execute tasks directly, bypassing workflow platforms altogether and reducing the need for software such as ServiceNow.
ServiceNow CEO McDermott addressed this issue head-on during the Q4 earnings call (a masterclass by McDermott, for what it’s worth), and he was spot on.
You see, the idea that AI will disrupt ServiceNow gets the direction of change wrong. AI, by itself, is probabilistic, meaning it produces outputs based on likelihood rather than certainty. This in itself makes it unusable for large enterprises, which require structured, governed, and predictable execution. This is exactly why, especially in the age of AI, workflow orchestration is critical, as it is deterministic and predictable.
In other words, AI doesn’t replace enterprise orchestration; it depends on it. This is why ServiceNow won’t be replaced: it provides the orchestration, governance, and system-level integration that AI needs to operate safely and at scale. AI doesn’t replace ServiceNow; it relies on it to actually do useful work inside the enterprise.
In other words, ServiceNow is the gateway to Agentic AI for enterprises, functioning as the execution and control layer that allows AI agents to operate across systems, workflows, and departments in a governed, predictable, and scalable way.
Therefore, I don’t just think NOW won’t be disrupted by AI; I expect it to be a generational opportunity to drive significant revenue growth over the next 5-10 years.
I explained in depth in August why I view it as the leading candidate to become the enterprise’s default AI orchestration layer. For the full explanation, see the analysis, but it comes down to this, practically.
For ServiceNow, agentic AI fits almost perfectly with its existing role and architecture. ServiceNow already sits at the center of how work is defined, routed, governed, and executed across IT, HR, customer service, and operations, making it a natural execution layer for autonomous AI agents. Rather than selling AI as a standalone product, ServiceNow embeds intelligence directly into mission-critical workflows, allowing agents to reason, plan, and act within processes enterprises already rely on.
ServiceNow’s intentionally neutral, system-agnostic positioning sets it apart. As a “platform of platforms,” it interoperates with Salesforce, SAP, Oracle, Microsoft, and any major cloud provider, as well as leading AI models, enabling cross-system automation rather than siloed AI use cases. Ultimately, businesses don’t want to operate AI agents separately for each system they use. They want a unified layer that can orchestrate tasks, automate workflows, and execute decisions across the entire enterprise stack. That’s precisely where ServiceNow fits in.
While Microsoft dominates productivity and infrastructure, and SAP owns ERP, they tend to operate within their respective ecosystems. ServiceNow is more horizontally integrated by design, which could make it the default agentic execution layer for many enterprises, overlapping all these systems with a single solution.
This maximizes customer ROI and makes the entire AI strategy future-proof.
Instead of just suggesting actions, an AI agent in ServiceNow could fully handle a task end-to-end. For example, if an employee’s laptop breaks, the agent can open a ticket, check inventory, order a replacement, notify the employee, and close the ticket, all without requiring human intervention.
All things considered, I would say the risk of ServiceNow’s platform becoming irrelevant or entirely replaced by AI is minimal. It is more likely to deliver significant benefits.
Now, the second AI-related concern centers around automation. The fear is that as agentic AI increasingly replaces human workers by automating tasks, enterprises will require fewer employees, which in turn reduces the number of seats needed for ServiceNow’s software. Since the majority of ServiceNow’s revenue is tied to seat-based licensing (companies pay per user instead of usage-based), investors worry that widespread automation could structurally limit seat growth and, over time, constrain revenue growth.
While this makes sense, the narrative misses the significant growth runway NOW still has. 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.
Additionally, 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. I think usage-based billing is likely to expand in the coming years, which could be a valuable growth driver, but management will implement this gradually.
In the meantime, NOW’s AI modules have already seen great adoption to date. The numbers speak for themselves.
In Q4, Now Assist ACV more than doubled YoY, exceeding $600 million, up from $250 million in August, and is on pace to well exceed the targeted $1 billion ACV for 2026. Furthermore, Now Assist deals have more than tripled, and the number of deals including 5 or more Now Assist products has grown over 10x YoY, as agentic AI adoption is strong and usage is growing rapidly.
NOW already sees customers renewing Now Assist features and adding more modules, as they quickly run out of tokens. For reference, in Q4, Now Assist expansions saw an average 70% upsell rate, meaning customers are nearly doubling their Now Assists ACV when renewing. This is a strong signal: as Agentic AI features see broad adoption within the company, it is driving significant ACV growth and trending well ahead of expectations.
NOW gave a few useful customer examples highlighted the value of AI-driven automation:
One customer was able to flip its customer support model from 80% human-led, 20% automated, to 80% automated and 20% human-led. This minimizes operating costs, shortens support resolution times, and enhances the customer experience, leading to strong ROI.
“A diversified industrial multinational conglomerate deployed ServiceNow agents to automate help desk triage. These ServiceNow agents now handle over 90% of incoming requests. They have reduced triage time by 50% and with 99% routing accuracy. This saves tens of thousands of hours annually.”
“One of Europe’s largest drugstore chains, use ServiceNow to transform its customer service cutting the time it took customers to receive support from 9 minutes to 30 seconds and resolving customer issues with 98% accuracy.”
NOW’s platform ROI is exceptional, making it one of the best next-generation enterprise software platforms. This is exactly why its renewal rate is consistently around 98%, suggesting minimal churn. These numbers show no weakness, and I expect AI features will only make the platform stickier.
On a final note on AI, ServiceNow has announced deals with both Anthropic and OpenAI in recent months. It will integrate both AI models deeply into its AI platform to run several agentic features.
In conclusion, ServiceNow seems brilliantly positioned to benefit from AI over the next 5-10 years. The Agentic AI market is expected to grow significantly over the next decade, with research firms projecting annual growth rates of 40-50%.
As a result, I can see a clear runway for NOW to become a $1 trillion business within 10 years.
M&A activity isn’t due to a lack of organic growth
The second development weighing on NOW’s share price and investor sentiment is a series of M&A deals in recent months, including the largest in its history, which has raised concerns about its ability to grow organically. Let’s point out some facts:
ServiceNow is still delivering the best organic growth among its large SaaS peers.
Q4 results highlighted that organic momentum shows no signs of weakness and is accelerating across multiple metrics.
NOW is the fastest enterprise software company to have ever reached $1 billion, $5 billion, and $10 billion in revenue organically. Since 2019, revenue has nearly quadrupled.
Product innovation and the integration of Agentic AI through Now Assist have been achieved without notable M&A, demonstrating a strong internal ability to innovate.
My point here is that NOW has never had any issues with organic growth, and that is no different today. The recent M&A activity is driven by a shift in the technological landscape, not by a move to accelerate revenue, but to strengthen the platform and grow its TAM by enhancing its cybersecurity capabilities.
You see, NOW is poised to complete two large acquisitions totaling roughly $10 billion. It will acquire two cybersecurity firms, Veza and Armis. To quote CEO McDermott, the reason it announced these deals in rapid succession is that it “assembles 3 critical layers for enterprises to operate securely in an agentic AI world: visibility, identity, and orchestration.”
You see, as companies roll out AI and autonomous agents across more parts of the business, the number of systems, devices, and endpoints that need to be secured grows rapidly. At the same time, most enterprises have limited visibility into their digital environment, especially for connected but unmanaged assets such as IoT devices, operational technology, and medical equipment. Traditional security tools weren’t designed for this level of interconnectedness, which creates new risks and makes a unified, workflow-driven security and governance layer increasingly essential.
As a result, NOW’s security modules were already growing rapidly, but its offering wasn’t complete. It addresses this with the Armis and Veza acquisitions, becoming a much more complete cyber offering integrated directly within the platform that deploys agentic AI, a very strong offering that significantly expands NOW’s TAM. Here is how management explained the motivation behind the acquisitions:
“First, Armis will solve the visibility problem. Armis provides real-time agentless discovery and classification of every asset across the entire enterprise. IT, OT, IoT, medical devices, industrial controllers, and even shadow IT that bypasses procurement.
This creates a continuously updated map of the enterprise environment. Armis is already protecting over 40% of the Fortune 100 precisely because it has cracked the visibility challenge. Second, Veza will solve the identity governance problem through its patented Access Graph technology, Veza maps, access relationships, and privileges across humans, machines, and AI agents in real time.
So, Armis discovers a vulnerability on an unmanaged IoT device in a manufacturing plant. That exposure insight automatically flows into ServiceNow’s AI Control Tower. Now you understand which production line depends on that device, which team owns it, and what the financial impact of downtime would be.
Simultaneously, Veza maps who and what has access to that device and related systems. ServiceNow then automatically prioritizes the risk based on business impact, triggers the appropriate remediation workflow routed to the right team, with the right permissions, and tracks resolution, all before an incident has a chance to occur.
This is autonomous, proactive cybersecurity, not alerts that sit in a queue, not manual coordination across fragmented tools, not security theater either. This is intelligent action at machine speed governed by unified policies executed through an automated workflow machine.”
Yes, it is rather brilliant.
So, just to be clear, this isn’t a move to bolster growth amid a lack of organic opportunities. It is a move to strengthen its position in a critical, rapidly growing market that perfectly complements the NOW platform. Against that backdrop, it makes a lot of sense – this isn’t an acquisition for revenue, but to strengthen its position in cybersecurity amid the rapid deployment of agentic AI.
I am all for these kinds of acquisitions.
Management expects the Armis acquisition, valued at roughly $7.8 billion in an all-cash deal, to close in the early second half of 2026. Additionally, following the acquisition of Armis, management sees no “other large white spaces that are necessary” to complete its platform vision, indicating no other large acquisitions are required.
Again, I don’t see any reason for investor concerns here.
On that note, let’s get to the outlook & valuation!
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Outlook & Valuation
As always, let’s start with guidance.
Starting with Q1, management now guides subscription revenue to range from $3.65 billion to $3.66 billion, well above the $3.58B consensus and suggesting 20% YoY growth, which is remarkable. This includes a 100 bps contribution from Moveworks.
Furthermore, management guides for cRPO growth of 20%, also including a 100 bps tailwind from Moveworks, and an operating margin of 31.5%, up roughly 90 bps YoY, despite continued gross margin pressure.
For FY26, management guides subscription revenue to be in the range of $15.53 billion to $15.57 billion, which is comfortably ahead of its $15 billion target set a few years ago and above the $15.26 billion consensus. Moreover, this points to another year of 20%+ growth, and investors can comfortably count on this guidance to contain significant conservatism. Here is how management itself put it:
“And by now, everyone knows how ServiceNow rolls. We don’t set our sights on hitting the guide. We set our sights on beating it.”
Investors can safely assume NOW to raise this FY26 guide throughout the year, and numbers to come in quite a bit higher, which means that growth momentum is likely to remain very similar to 2025, in the low-twenties, which is a very impressive feat!
Furthermore, management guides for a subscription gross margin of 82%, down 150 bps from 2025, as expected amid higher computing costs. This headwind will likely persist in the coming years, but NOW does see room for these computing deal margins to improve over time, which means gross margins can recover at some point – this isn’t structural.
Positively, operating leverage will continue to offset these headwinds, with NOW guiding to an operating margin of 32%, up 100 bps YoY. This includes a 50 bps headwind from the Armis acquisition.
Finally, management guides for a FY26 FCF margin of an industry-leading 36%, up another 100 bps YoY and 350 bps ahead of its target set in May of 2025, driven by significant operational leverage and further opportunities to reduce CapEx.
In my opinion, this is sensational guidance. Despite its growing size and some cost headwinds from AI innovation and computing investments, ServiceNow is guiding to revenue momentum remaining strong above 20%, margins expanding, and cash flows outpacing revenue.
Moving to my own projections, the excellent FY25 results and strong underlying demand momentum allow me to raise my FY26 revenue and EPS estimate. I now expect NOW to deliver revenue and EPS growth of roughly 21%, resulting in a FY26 revenue forecast of $16.04 billion, ahead of NOW’s current guidance, as I see no reason for growth to slow down below 20% in 2026, with strong growth in Now Assist ACV offsetting the rule of large numbers for the time being. At the same time, I anticipate mounting gross margin pressure, which will limit stronger EPS growth.
Looking ahead, I expect NOW to maintain revenue growth of 18-20% through 2030, with AI likely remaining a strong tailwind, especially as I expect a gradual shift to usage-based pricing for Now Assist modules, which, amid strong adoption, will be a notable growth driver. As a result, I think the upside of these estimates outweighs the potential downside. Given the views I have shared throughout this analysis, I expect NOW to maintain this momentum in the early 2030s.
On the P&L, I expect margins to gradually expand from 2027 onward, driven by strong operating leverage on costs and easing gross margin pressures as computing rates become more favorable. This will allow for low-twenties EPS growth.
These assumptions are reflected in the financial forecast below!
When it comes to valuation, ServiceNow has rarely looked better. This SaaS giant has consistently commanded a massive premium in recent years, and justifiably so given the strength of its business model, sensational and consistent growth, and pristine financials – it has been, and still is, the definition of “best-in-class”.
Yet the sell-off in $NOW shares in recent weeks, despite an improving outlook, has made them exceptionally cheap. In my opinion, this is as rare a discount as comes. $NOW shares have lost 32% since mid-December and now trade almost 50% below a January 2025 all-time high. And, again, this isn’t driven by fundamentals at all. Instead, it is driven solely by sentiment and broader market concerns about the future of SaaS, fueled by false narratives.
In other words, NOW shares have become significantly cheaper despite fundamentals remaining intact and even improving. At a current share price of $117, NOW shares trade at:
27.5x this year’s earnings, a 59% discount to its 5-year average, only a 17% premium to the technology sector, and down from 50x back in August.
A PEG of 1.25, a 40% discount to its 5-year average, a 21% discount to the technology sector median, and down from 2.3x back in August.
21x this year’s FCF, a 50% discount to the 5-year average, and only marginally ahead of the sector median.
That is simply ridiculous.
Put differently, ServiceNow is currently being valued as if its business model is at risk of disruption, despite clear evidence to the contrary. A company growing revenues north of 20%, generating mid-30% free cash flow margins, expanding margins, accelerating bookings, and locking in long-term contracts should not trade at ~20x free cash flow. That multiple is typically reserved for slow-growing, mature software companies with limited reinvestment opportunities, not for a best-in-class enterprise platform still early in its AI-driven growth curve.
To put this into perspective, at ~21x FCF, investors are effectively pricing ServiceNow as if growth is about to decelerate sharply or margins are about to compress structurally. Yet management is guiding for continued 20%+ growth, expanding operating margins, and rising free cash flow, while AI adoption is already translating into higher ACV, larger deal sizes, and stronger platform stickiness. There is a clear disconnect between the business's operating reality and the valuation the market is currently assigning to it.
In my view, this is not a fair reflection of ServiceNow’s quality, durability, or long-term earnings power. As sentiment normalizes and the narrative shifts from fear to fundamentals, I see meaningful upside driven not only by continued earnings growth, but also by multiple expansion back toward levels more consistent with a best-in-class compounder.
In short, NOW shares look extremely oversold at current levels, and today’s valuation represents a rare opportunity to acquire a mission-critical, category-defining enterprise software company with pristine financials at a price that simply does not match its fundamentals or outlook.
For reference, once panic subsides, I believe this company, given its quality, outlook, moat, and long runway, should trade closer to 35-40x earnings or at least 30-35x cash flow. So, let’s assume the low end of this and use a 35x (earnings) 2028 exit multiple, which I would argue still leaves significant additional upside. Using these numbers, I calculate a $221 end-of-2028 target price for $NOW shares. From a current share price of only $117, this reflects potential annualized returns of nearly 24%(!) or a near 100% return in just three years under conservative assumptions. Under more optimistic estimates, a $250 target price remains well within reach.
In my eyes, there isn’t a better risk-reward out there right now. This isn’t a turnaround story; this is a business firing on all cylinders and showing no signs of weakness.
This is one of those rare opportunities where fundamentals go out of the window and a “sell now, think later” strategy is being deployed by the market. For retail investors, this creates the best long-term opportunities. This is one of those, in my opinion.
ServiceNow is one of the most obvious bargains in the market today, and I am personally loading up – I have already more than tripled my NOW position since August, with the far majority bought in these last two weeks.
Let me close with a quote from McDermott during the earnings call:
“This is a $1 trillion company in the making.”
Rating: Strong Buy - Accumulate below $150
2028 Target Price: $221
Implied CAGR from current price: ~24%
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Whatever about the prospects of the company - McDermotts performence on the last conference call - is absolutely required listening for any investor. “Give me my market share back”.
Personal Agentic AI would also need user identity and authorizations to perform any activity on behalf of users on any platform. I think user count will go up or will stay the same on these SaaS platforms. These risks are raised by people who don’t see how the actual use cases are implemented addressing compliance and security risks.