The Few Bets That Matter
Concentrated Equity Investor, AI Infrastructure
ServiceNow could become a new SaaS leader after earnings proved AI is a tailwind. It broke out on high volume and is now retesting its 50-day moving average on low volume with a clean reaction, showing aggressive buyers and holders waiting rather than fleeing. The open question is whether buyers step back in at the 50-day line. x.comÂ
ServiceNow hasn't started an uptrend, so it isn't a high-probability setup worth sizing into. It gave back all its gains in a few hours as traders took profits and investors trapped through months of downtrend took their exit, which is why uptrends take months to form and breakouts get retested. There is no reason to rush before confirmation. x.com 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 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 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 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 keeps selling more to existing customers over time, one of the biggest reasons to be bullish long term. Its 2011 customer cohort's annual contract value grew from an indexed $100 to $3,730 by Q3 2026, or 37.3x, even including customer losses. 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 Q2 shows AI adding to growth, with AI reaching $1B in annual contract value and full-year guidance raised. Revenue rose 24% to $3.99B, subscription revenue 24.5% to $3.88B, and adjusted EPS of $0.90 beat. Technically, higher lows are in place, with price at the volume-shelf launch area. 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
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's 37% YTD drop was a multiple derating, not a broken business, so it can rerate without new news. AI is now real revenue, with AI ACV above $1B in Q2, net new AI ACV up 40% sequentially and agentic deployments up 9x in nine months, making the $1.5B FY target credible. Subscription growth re-accelerated to 23% constant currency from 19%, cRPO rose 21% to $13.2B and guidance was raised twice to $15.76-15.78B, while operating and FCF margins held at 31.5% and 35%. x.comÂ
