Johan Ekroth
AI Infrastructure/Space/Defense Investor, Bottleneck Research
AI needs a boss, and ServiceNow has spent years building that management layer; now its earnings are catching up with the thesis. Per @ParadisLabs, Q2 subscription revenue rose 23% to $3.9B, operating margin hit 30% versus 27% expected and EPS was $0.90 versus $0.86, though Q3 subscription guidance of $4.0B trailed the $4.1B estimate. @ParadisLabs adds that no credible CTO will swap ServiceNow for an AI tool with uncertain ROI. x.comÂ
ServiceNow will skyrocket sometime in 2026 once the market understands its position in agentic AI. CEO McDermott guides to $15.7B of subscription revenue this year and $30B by 2030, doubling the company again, and $27.7B of RPO is future revenue already under contract. The fundamentals are solid and the narrative has only just started. 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 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'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 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 Q2 shows fears of AI killing the business were overdone. Per @StockSavvyShay, revenue was $3.99B against $3.92B expected, EPS $0.90 against $0.86, and operating margin 30% against 27%, while AI annual contract value crossed $1B. Q3 cRPO growth was guided to 19.5% versus 18.5% expected, though subscription revenue guidance of $4.0B came in below the $4.1B estimate. 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
AI is not replacing ServiceNow, because no credible CTO will offboard it for an AI tool with uncertain ROI. Clients renew at 98%+ rates, and many multinationals hold multi-thousand-seat plans. Q2 subscription revenue rose 23% to $3.9B, operating margin was 30% versus 27% expected, and 123 deals averaged over $1 million in contract value, up 40% year over year. Q3 subscription guidance of $4.0B came in below the $4.1B estimate. x.com x.com x.com x.comÂ
ServiceNow is priced as if AI agents will replace it, yet its numbers show AI becoming its biggest growth driver. Q2 revenue grew 24% to $3.9B, faster than last quarter, earnings beat by almost 5% and full-year guidance rose for the second time. Its AI products crossed $1B in annual contract value, renewals were 98%, and $1M+ deals rose 40% to 123. AI infrastructure costs have squeezed margins slightly, and AI shrinking software budgets over 5-10 years is a fair bear risk. 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 Q2 2026 results refute the bear case that AI is demo buzz without monetization. AI products crossed $1B in annual contract value, net new AI ACV accelerated over 40% sequentially, and customers running agentic AI in production grew ninefold in nine months, tracking toward a $1.5B full-year target. Revenue rose 24% to $3.99B, adjusted EPS of $0.90 beat $0.86, and cRPO grew 21% to $13.2B. Partnerships with Anthropic, Nvidia and Lenovo extend its role as an enterprise AI control tower. … Show more
