Packaged Software · #63 in the Retail 100

ServiceNow

NOW

Our rating: buylow conviction
12-month target: $138.70 +30.8%
Expected vs. S&P 500: +12.3 ptsSee the math
Next earnings: Jan 27In 83 daysEarnings calls page ↗

Borrowing for the Armis deal lifted ServiceNow's interest expense from $6 million to $81 million a quarter, holding adjusted earnings growth to 5% against 20.5% revenue growth.

Summary

ServiceNow sells subscription software that large companies use to run IT, HR, customer service and security requests, and nearly all its revenue is subscriptions. Its shares fell 27% on October 29 after it guided next quarter's contracted revenue growth below forecasts, which revived fears that AI agents will shrink paid user counts. Revenue still beat estimates, AI sales are rising, and cash flow targets went up. The stock depends on backlog growth steadying while AI revenue builds.

$109.15

-$73.62 (-40.28%)Past year

What ServiceNow does

ServiceNow sells software that large organizations use to route and track work, from IT fixes to HR requests. Contracts usually run three years with a 98% renewal rate, so revenue is unusually predictable.^1,24,25,26

What it sells

IT and security
Tools IT departments use to handle support tickets, track equipment and respond to security threats. The other products build on them.
Customer service
Software linking customer service agents with field technicians, sales and order handling, plus versions tailored to specific industries.
Employee services
Workflows for HR, legal, finance, supply chain and facilities, such as onboarding a new hire or approving a purchase.
App-building tools
Low-code tools that let companies build their own workflows on ServiceNow, plus data privacy and security tools.

Who buys it

Large companies and governments. Subscriptions are 97% of revenue, and 680 customers paid more than $5 million a year as of September 2026. One reseller to the U.S. government was 11% of 2025 revenue, so federal budgets matter.

Where you've seen it

Employees at many large companies file IT tickets and HR requests through ServiceNow, often without seeing its name.

The backstory

From the end of 2024 to June 2026, investors sold ServiceNow on fears that AI agents could do the work companies now pay software makers for, user by user. The October 28 report revived that fear when backlog growth was guided down. CEO Bill McDermott's answer is to sell AI agents on ServiceNow, price more deals by usage, buy security companies Armis and Veza, and invest in deployment help.

How the business makes money

Why big companies keep paying ServiceNow year after year^{1,2,6,8,9,10,16,22,26,27,29}

Step 1
Large companies run IT, HR and service requests through workflows built over years on ServiceNow, so replacing it means rebuilding them.
Step 2
Contracts usually run three years and 98% renew. Revenue due under contract in the next 12 months is $13.65B.
Step 3
Customers add AI agents on top of what they already pay, and AI packages cost 20% to 30% more.
Step 4
Software costs little to deliver once built, so about 36¢ of each $1 of 2026 revenue is expected to be left over as spare cash.
What shareholders get
Spare cash buys back stock, $2.2B in the first nine months of 2026, so each remaining share owns more of the profit.

Advantages

Built into how big companies work

Major advantage

Nothing protects ServiceNow more. Large firms run IT, HR and service requests through workflows built over years, so replacing it means rebuilding them. Its customers paying over $5M a year grew about 23% in a year.^1,26

Customers already pay for its AI

Strong advantage

Strong evidence that AI adds revenue. AI net new contract value grew 65% from a year earlier, and AI deals over $1M grew 4.5 times.^1,2,4,26,27

Uses the leading AI models

Supporting

Useful, because it spares ServiceNow from building its own models. Deals with OpenAI and Anthropic let it run their models inside its agents.^19,20

What's changing

A record drop tests the AI story

ServiceNow beat on revenue and raised its AI target on October 28, but guided next quarter's backlog growth to 18.5%, below the 19.8% analysts expected. Shares fell 27% the next day, their worst one-day drop in over 14 years, per Yahoo Finance, erasing a run-up of about 43% in three months. The next test is the January report with first 2027 guidance.^{11,12,26,28,29,30}

Competitors

Who else an investor would consider, and how they compare.

Company	Market value	What it does	Compared with ServiceNow
ServiceNowthis stock	$113.30B	ServiceNow sells software that large organizations use to route and track work, from IT fixes to HR requests. Contracts usually run three years with a 98% renewal rate, so revenue is unusually predictable.
SalesforceCRM	$203.73B	Sells software for sales and service teams, now adding AI agents called Agentforce.	Salesforce runs customer-facing work; ServiceNow runs internal workflows and grows twice as fast.^1,12
MicrosoftMSFT	$3.96T	Sells Office and Azure, and builds Copilot AI into tools workers already use.	Microsoft bundles AI agents with Office; ServiceNow sells deeper workflows. They also partner.^21,1
AtlassianTEAM	$56.26B	Makes Jira for software teams and is pushing into IT help-desk software.	Atlassian sells to tech teams; ServiceNow runs workflows across the whole company.¹³
AI model makers (OpenAI, Anthropic; private)private	—	OpenAI and Anthropic, selling AI agents that could do work directly for companies.	Their agents could replace workflow software; today their models also run inside ServiceNow.^9,19

Leadership

Who runs the company, and how the stock has done under the CEO.

NOW -22.9%S&P 500 +61.8%Price change since Nov 2021, the earliest data available

20222023202420252026

Bill McDermottChairman and CEO6.9 yrs, since 2019

Gina MastantuonoPresident and CFO1.8 yrs

Amit ZaveryPresident, Chief Product Officer and COO2 yrs

Wall Street on McDermott: MixedCantor raised its price target after ServiceNow bought Armis, a security company, to build AI that handles security work. KeyBanc rates the stock a Sell, though it thinks ServiceNow can reach $30B in subscription sales by 2030.^L1,L6,L8,L9

Leadership sources (9) · researched Oct 2026

L1ServiceNow announces Bill McDermott to become CEO, succeeding John Donahoe, who is stepping down to become CEO of Nike · ServiceNow, 2019-10-22
L2ServiceNow, Inc. Form 8-K (McDermott appointment effective; CFO appointment) · ServiceNow / SEC, 2019-11-18
L3Bill McDermott takes reins as ServiceNow CEO sooner than expected with new CFO · TechCrunch, 2019-11-18
L4How ServiceNow became a $200 billion powerhouse · Fortune, 2025-05-13
L5ServiceNow Names Enterprise Software Industry Veteran Amit Zavery as President, CPO and COO to Lead Product and Engineering · ServiceNow / Business Wire, 2024-10-23
L6ServiceNow names former SAP chief Bill McDermott as CEO; stock falls · CNBC, 2019-10-22
L7Earnings call transcript: ServiceNow beats Q2 2026 forecasts, shares rebound after hours · Investing.com, 2026-07-22
L8ServiceNow stock trades at EUR 113.75 as AI targets rise · ad-hoc-news.de, 2026-09-30
L9KeyBanc Reiterates ServiceNow's (NOW) Underweight Rating · Yahoo Finance, 2026-05-09

Bull vs. bear: two bets on the same stock

1
A share is a small slice of the company. Its value comes from the profits the company will make in the future.
2
Nobody knows those profits yet. Buyers (bulls) pay today's price betting they'll beat what most people expect. Sellers (bears) bet they'll fall short.
3
When results come in, the price moves toward whichever side was right, and that side makes money.

The question they disagree on

Can ServiceNow keep subscription revenue growing about 20% a year while AI agents reduce the number of human users customers pay for?^{1,2,4,6,8,9,15,20,22,26,27,29,31}

Bull case: why buyers buy

If AI agents sold on ServiceNow grow faster than per-user revenue shrinks, backlog growth steadies near 20% and the stock earns back part of its old valuation.

AI sales keep accelerating. AI net new contract value grew 65% from a year earlier, and the 2026 target rose to $1.7B.
Big customers keep signing. Deals above $5M of net new annual contract value rose over 135%, to 19.
Cash flow is improving. Management raised its 2026 free cash flow margin target to 36%, helped by lower capex (capital spending).
The stock is cheap by its own history. After the October 29 drop it trades near 24 times expected earnings, against a five-year median near 51.

Bear case: why sellers sell

If customers buy AI agents from model makers and cut user licenses, backlog and revenue growth keep slowing and the stock stays priced as a slowing software company.

Backlog growth is slowing. Contracted revenue due in 12 months (cRPO) is guided up 18.5% in Q4, below the 19.8% analysts expected.
Debt now weighs on profit. Interest expense was $81M, up from $6M, and adjusted EPS missed by 2 cents.
AI setup work trims subscription revenue. Deployment services now count as professional services, which management says takes about 0.5 point off Q4 subscription growth.
AI labs could sell agents directly. ServiceNow fell 7% on February 3, after Anthropic's Claude Cowork plugins set off a software selloff.

Where Delphi landsbuyWe think the bull case is more likely than today's price assumes.See why

What to watch

The numbers that will settle the debate.

Subscription revenue growth▼ worsening

21% last quarter (20.5% constant currency); Q4 backlog growth guided to 18.5%^26,27,28

Shows whether AI agents add more revenue than shrinking user counts take away.

AI annual contract value▲ improving

2026 target raised to $1.7B, from $1.5B at the May Analyst Day^26,27

The clearest measure of whether customers pay ServiceNow for AI agents.

Adjusted operating margin▲ improving

32.5% last quarter; 2026 guidance 31.5%, held^26,27

Shows whether AI computing costs and the Armis purchase squeeze profit.

Next earnings report

Jan 27

In 83 days

Earnings calls page ↗

Expected earnings per share: $0.99
Expected revenue: —

What to listen for: Whether Q4 backlog growth lands at or above the 18.5% guided, whether AI contract value reaches $1.7B, and what first 2027 guidance says.^31,29

What would prove this wrong

✕Subscription growth falls below 18% as customers cut user licenses.
✕AI contract value misses the $1.7B year-end target.
✕Backlog growth slips below the 18.5% guided for Q4.
✕Customers buy AI agents directly from model makers, bypassing ServiceNow workflows.

Our ratingBuyLow convictionas of Nov 2 close, $106.01 · what ratings mean

After a 27% drop the stock trades near 24 times expected earnings, far below its five-year median of about 51, while AI contract value targets keep rising.

12-month target: $138.70 (+30.8%)
S&P 500, same method, with dividends: +18.5%
Expected vs the market: +12.3 points

The math behind the recommendation

Three 12-month price scenarios, weighted by probability, compared with the S&P 500 under the same method.

Now $106.01

Target $138.70

bull case20% likely

$172.98 +63%

AI contract value beats $1.7B and backlog growth steadies near 20%, so AI fears fade and earnings reach the top of analyst forecasts.

$6.05 earnings per share × 28.6 = $172.98

base case50% likely

$147.11 +39%

Subscription growth eases toward 19% while AI agents offset slower per-user growth, and earnings match forecasts for the year to September 2028.

$5.66 earnings per share × 26 = $147.11

bear case30% likely

$101.82 -4%

Backlog growth keeps slowing below 18%, customers buy agents elsewhere, and Armis interest costs hold earnings near the low estimates.

$5.30 earnings per share × 19.2 = $101.82

Why these odds: After the report analysts cut 2026 EPS from $4.07 to $3.93 and 2027 from $5.01 to $4.89, and revisions leaned down. Revenue beat and AI targets rose, but backlog guidance and EPS missed. 2028 is extended from 2027.

How the prices are built: Wall Street expects earnings per share of $5.66 for the year starting a year from now (analysts range from $4.94 to $6.44). Today the stock trades at 22.8 times next year's earnings per share; its five-year middle is 51.1. Because earnings per share is forecast to grow fast, valuations are cut 1%, since fast growth rarely keeps its price.^{1,16,26,27,30,31,32,33,34}

What tests the call: Q4 2026 earnings (date unconfirmed): backlog growth versus 18.5% guidance and AI contract value versus $1.7B (~2027-01)

Buy means expected to beat the S&P 500 by 10+ points over 12 months; Sell means expected to trail it by 10+. Inputs gathered Oct 29; the recommendation updates with the price every day. Model-generated, not personalized investment advice. How ratings work · Track record

What the price assumes

At $106.01, investors pay 22% more than they pay for the average stock's earnings

ServiceNow trades at 23 times the earnings analysts expect over the next 12 months. That ratio is the multiple: what investors pay today for each dollar of a year's earnings. That is cheaper than it has been 80% of the time over the past five years, when the middle was 51.

Analysts expect earnings to grow about 22% the year after, against about 16% for the S&P 500. The S&P 500 trades at 19 times. The premium is a bet that ServiceNow's earnings keep growing faster than the market's for years, not just next year.

ServiceNow multiple: 23×
S&P 500 multiple: 19×
Base case: +39%
Bear case: −4%

The skewOur bear case loses about 10¢ for every $1 our base case makes. That ratio, how much you stand to lose against how much you stand to make, is the skew.

Last earnings

Q3 2026 results, reported Oct 28

Revenue beat and the AI target rose to $1.7B, but adjusted EPS missed by 2 cents and Q4 backlog growth was guided to 18.5%, below the 19.8% expected, so shares had their worst day in over 14 years.^{26,27,28,29,30,33}

Reported Oct 28	Expected	Actual	Difference
Earnings per share	$0.93	$1.00	+7.5%
Revenue	—	—	—

Beat expectations in 7 of the last 7 quarters

Stock reaction: Down 26.95% on October 29, to $109.67 from $150.13

Why the stock moved

Down: Q4 contracted revenue (cRPO) growth guided to 18.5%, below the 19.8% analysts expected and down from 20.5% in Q3.
Down: management blamed early renewals, on-premises public sector deals and cancelable contracts; RBC said that clashed with its AI optimism.
Down: adjusted EPS of $1.00 missed by 2 cents; interest expense rose to $81M from $6M after Armis.
Up before the drop: revenue beat, and the AI contract value and free cash flow margin targets rose.

What it means for the stock: Weakened the near-term case. AI sales evidence got stronger, but the backlog guide and Armis interest costs show slower, costlier growth; January must show backlog growth steadying.