ServiceNow investment case

ServiceNow

ServiceNow is the platform enterprises use to run their workflows: originally IT service management, now extended across HR, customer service, security operations, and increasingly anything a large organisation wants to automate and govern in one place. It is a SaaS business with a 76% gross margin, $14 billion of trailing revenue growing 22% year-over-year, and $4.5 billion of free cash flow at a 32% margin. It sits at roughly a 44% share of its core ITSM market and describes itself as the control tower for enterprise operations.

The thesis here is very similar to mine on UiPath. UiPath is smaller and higher variance, having more potential upside if agentic orchestration becomes a large new market, but more execution and adoption risk. Both express the same conviction on how AI will affect existing powerful enterprise software. The market has been pricing in significant risk for agentic AI to threaten existing enterprise software. Perhaps to some but complex and important systems such as what ServiceNow provides aren’t under risk and instead have a chance to get more business. Applying AI to enterprises needs a governance, audit and integration to a place where it can run inside the organisation. The more AI enters the enterprise, the more work there is for the orchestration layer.

The stock is down about 46% over the past year, caught in the broad “SaaS reset” of early 2026. It trades at $103 against a 52-week high of $239.

ServiceNows next earning report releases on the coming week on 22nd of July.

Why AI helps rather than disrupts

The disruption fears go roughly like this: if a language model can reason through a workflow, why pay ServiceNow for the workflow platform? In my opinion, in the year 2026, this is a naive proposition. ServiceNow has the software to handle actions across its IT estate, its employee records, on its customer data without permissions, create audit trails, provide human-in-the-loop controls, and integration into other existing systems. Building all this and integrating AI into it is much harder and crucially more expensive than buying AI features for these from ServiceNow.

Management calls its Now Assist GenAI offerings the fastest-selling products in the company’s history, and the count of Now Assist customers spending over $1 million in annual contract value grew 130% year-over-year in Q1 2026. The company is putting AI into CRM, security, analytics, and workflow data, and raising its full-year subscription outlook.

ServiceNow is dominant in its core market, deeply embedded, with high switching costs, so no matter how AI affects the industry it is already large and profitable business. I think executing the AI transition is also strategically relatively easy for ServiceNow as it can upsell AI features into systems customers are already using.

Competition

ServiceNow’s competition depends on the segment. In its core ITSM market it faces Atlassian’s Jira Service Management, BMC, Ivanti, and Freshservice, and it leads all of them. Expanding into CRM it runs into competitors like Salesforce, Oracle and Microsoft. Some competitors like Salesforce in particular are pushing into ServiceNow’s territory just as ServiceNow pushes into CRM. During the AI phase the versatility of ServiceNow across multiple segments should be an advantage, the large platform and interconnected platform of ServiceNow is pretty nice to slap some AI on it.

There should be plenty of opportunity to sell AI to existing customers without large interference from competition. . A single system of record for enterprise workflow, with deep integrations and a large installed base that is expensive and disruptive to replace. With this stickiness it should be relatively easy for ServiceNow to sell AI features to existing customers.

Valuation

As of 18 July 2026:

The big difference in the forward and trailing P/E is explained by GAAP items such as stock-based comp which are not included in the forward P/E. SBC is roughly $2 billion a year against $1.75 billion of net income. It is main reason GAAP and adjusted figures diverge so much. 20x forward earnings and a PEG of 0.90 for a business growing revenue 22% with a 32% free-cash-flow margin and a net-cash balance sheet is not a demanding price. The reverse DCF implies the market is pricing only about 9.5% perpetual FCF growth, which means that the market sees more risk here than I do. The company is guiding to more than double its subscription revenue to $30 billion by 2030 into a $600 billion addressable market. I see upside here since I think the AI shift only help rather than hinder reaching this goal. Unlike with UiPath the analysts seem to have a similar opinion with me, as NOW has a $141.64 mean target and a STRONG_BUY from 46 analysts, meaning roughly 37% upside.

After a 46% drawdown highly profitable compounder is being priced as if its growth is about to slow, at a time when its new AI products are its fastest-selling ever.

Growth

The growth is steady and high-quality. Revenue rose from $3.1 billion in Q1 2025 to $3.8 billion in Q1 2026, up 22% year-over-year, with every sequential quarter positive. The forward-looking metrics are stronger than the headline: current remaining performance obligations (cRPO) sit around $12.6 billion and total RPO around $27.7 billion. Customers spending over $5 million in annual contract value grew to 630, and the number of $1 million-plus net-new-ACV deals keeps climbing.

The AI layer is the incremental growth engine on top of this base. The 130% year-over-year growth in Now Assist customers over $1 million ACV is promising and there are no indications of ServiceNow’s business being lost to pure AI-based solutions. Management’s raised full-year outlook and its “Rule of 55+” framing (growth plus margin) suggest the AI upsell is translating into reality.

Disclaimer

The author has a long position in ServiceNow. This article is not investment advice.