Emil Hartela
Independent Equity Research, Alternative Data & Primary Research
ServiceNow is using AI to remove the 'implementation tax' that drove its stock down as much as 60%, turning its biggest weakness into a strength. Its Claude-powered Build Agent lets non-technical staff create workflows and apps in plain English, and it now deploys from tools like Cursor and Claude Code into ServiceNow's governed runtime. Now Assist ACV is tracking past $1.5B versus a $1B target, million-dollar customers grew over 130%, and renewals held at 97%. Its moats remain. x.comÂ
ServiceNow is not yet cheap enough, though it likely remains a great company that will dominate in the future. The widely quoted 20x free cash flow ignores stock-based compensation; adjusting for it, the real trailing multiple is closer to 35x and forward around 28x. SBC is falling over time. It could still slide toward the low 20s, where it likely becomes a great opportunity, but waiting carries real risk: momentum is still the wrong way, yet it is getting close. 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 too cheap given hard evidence that AI agents expand its business. Customers running agents in production grew ninefold in nine months, its AI line crossed $1 billion in annual contract value, and half of new business is now priced on something other than headcount. 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 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 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 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 AI growth has debunked the "AI destroys software" fear, proving it an AI enabler rather than a victim. AI contract value is beating expectations, with AI revenue on track to clear $1.5B by end-2026 and ramp toward $9B+ by 2030, while subscription revenue compounds at 20%+. Pricing is shifting from seats toward outcomes, retention is best in class, and it pairs tens of billions in revenue with exceptional free cash flow. A deeper Tech Mahindra partnership adds enterprise AI reach. … Show more
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 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
