Ashton Invests
Long-Term Equity Investor, Fundamental Stock Research
ServiceNow's AI adoption strengthens its long-term case despite Q3 profit pressure. Agentic AI production consumption rose over 13x YoY year to date, and its AI ACV target rose to $1.7B. Revenue grew 20.5%, with 680 customers above $5M in annual contract value. Adjusted EPS rose just 4% and missed estimates; revenue costs rose 56%, partly from acquisition-related amortization and other expenses, while GAAP net income fell 45%. Still very bullish long term despite an imperfect quarter. x.comÂ
ServiceNow's third-quarter subscription revenue, cRPO and operating-margin beats make its double-digit selloff look overdone. After a 77% rise from April lows, it needed a big beat and raise; lower fourth-quarter cRPO guidance and back-loaded implications for $30-$32 billion in subscription growth by 2030 leave the stock in show-me mode. x.comÂ
ServiceNow's unexpected expense surge makes its rich valuation more vulnerable in a struggling software sector. Revenue rose 21%, but spending drove an EPS miss and one quarter of guided cRPO deceleration; wider market conditions could hurt near term. The 20% selloff looks excessive, and few software companies should benefit as much from AI. Management could deliver over 3-5 years, though the stock is only close to a buy again now; below $100 looks good for the long term. x.com x.com x.com x.comÂ
ServiceNow's seat business is being cannibalized faster than AI deals can replace it. Next-quarter cRPO growth is guided to 18.5%, down from 20.5%, while subscription growth was 24.5% two quarters ago; agentic usage on its platform is up 13x. Management points to AI deal value heading to $1.7bn, against a roughly $16bn subscription business. The slowdown leaves more pain ahead. Underweight, $90 target. x.com x.comÂ
Constellation Software offers the same growth rate as ServiceNow at half its multiple when ServiceNow's after-tax stock-based compensation is factored in. x.comÂ
ServiceNow ranks among the favored stock picks in a list of top ideas. x.comÂ
ServiceNow's growth and deteriorating margins do not justify its valuation. It grew 3% quarter over quarter against a 107x trailing GAAP P/E, and its margins continue to deteriorate. It remains a great company, but is mostly saturated relative to that valuation. x.com x.com x.comÂ
ServiceNow's growth comes mostly from existing customers routing more workflows through the platform, so revenue can rise with workflow density even if seat counts stay flat or fall. Customers usually start in IT service management, then add HR, security operations and customer service, and net retention has run well above 100%. Q1 2026 subscription revenue grew 22% and RPO of about $27.7B rose 25%. The central question is whether AI-driven automation speeds up or slows that expansion cycle. … Show more
ServiceNow's AI business undercuts fears that AI will put it out of business. Its AI revenues are expected to surpass $1.5 billion by the end of 2026 and reach $9.6 billion in 2030. The stock rose 9% back to $137 a share. x.com x.comÂ
ServiceNow's costs are rising far faster than revenue without the RPO acceleration management promised. Q3 revenue rose 21%, while total cost of revenue climbed 56% and net income fell 45%; stock compensation appears to be using about half of free cash flow. The selloff looks deserved, though the shares are now closer to fair value. Sustainable margins and measurable returns remain the test. x.com x.com x.com x.com x.com x.comÂ
ServiceNow's AI contract growth and improving free cash flow margin make the 18% selloff excessive and its shares a massive discount among leading enterprise AI companies. AI net-new ACV rose 65%; its 2026 AI ACV target rose to $1.7B, up 70% from the start of the year. Adjusted operating margin slipped to 32.5% from 33.5%, but free cash flow margin rose to 20% from 17.5%. Acquisition costs, stock compensation and severance largely drove the GAAP decline. x.com x.com x.comÂ