Roger
Business Owner, Former Assistant Research Professor
ServiceNow's slowing contracted-revenue growth suggests agentic AI and growing open-source alternatives may be reducing the need for its products. Q3 operating margin fell to 9.4% from 16.8% a year earlier, net income dropped, and cRPO growth slowed from 25% to 20.5%; Q4 guidance implies 18.5%. x.comÂ
ServiceNow's gross profit and expense trends show its underlying business deteriorating despite the AI revenue pitch. Quarterly gross profit grew just over 10% year over year, possibly its slowest pace ever, while expenses rose across the board and profit weakened materially. Relabeling revenue as AI has not changed the trend in total sales. 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
ServiceNow's guidance growth is set to fall by another fifth next quarter, a poor trajectory rather than a buying opportunity after earnings. 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
ServiceNow is the kind of software stock to avoid in a market where every new Claude feature knocks such names down about 10%. Arista Networks is the nicer pick. x.comÂ
Investors dislike ServiceNow scaling up forward-deployed engineers, even though it is directionally right for customer outcomes. That aversion is the main reason the SaaS selloff is back. x.comÂ
ServiceNow is proving that AI is a tailwind rather than a threat to its business. It launched Flow, an AI IT service-desk agent companies can deploy without building their own agents in house. The market had assumed companies would build such agents themselves and replace ServiceNow; it may turn out to be the exact opposite. x.comÂ
ServiceNow still looks too expensive even after falling 60-70% from its highs, given slowing growth, compressing margins, too much dilution and significant future AI risks. @realroseceline notes guidance drove the drop: the Armis acquisition brings temporary margin pressure, current remaining performance obligations are decelerating from 22% to 18%, and stock-based compensation has reaccelerated. x.comÂ