Key Stats for NOW Stock
- Past week’s performance: 9.4%
- 52-week range: $81 to $195
- Valuation model target price: $154
- Implied upside: 23.6% over 2.4 years
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From SaaS Fear to AI Proof Point: ServiceNow’s Turning Quarter
ServiceNow (NOW) shares jumped after the company delivered a Q2 that pushed back hard against a narrative that has weighed on software stocks all year. That narrative, often called the SaaSpocalypse, held that autonomous AI agents would let companies build their own workflows instead of paying for platforms like ServiceNow. Subscription revenue instead grew 23% in constant currency to $3.88 billion, beating the company’s own guidance.
The standout metric was AI monetization. ServiceNow’s AI annual contract value crossed $1 billion for the first time, with net-new AI contract growth accelerating more than 40% sequentially. Deals including five or more ServiceNow AI products increased five-and-a-half times year over year, while customers running agentic AI in production grew ninefold over nine months.
Backlog strength reinforced the message. Current remaining performance obligations, a measure of contracted future revenue, reached $13.2 billion, up 21% year over year, while total remaining performance obligations hit $29 billion. ServiceNow also closed 123 deals worth more than $1 million in new annual contract value, up 40% from a year earlier, showing large enterprises are committing bigger budgets to the platform.
CEO Bill McDermott summarized the quarter simply, saying “we are who we said we were.” He pointed to ServiceNow’s expanding cybersecurity business, which he called a “10-figure” segment growing faster than dedicated security vendors, as evidence the platform is broadening beyond IT service management. Going forward, the question is whether AI contract growth can keep accelerating as more customers move from pilot projects into full production deployments.
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Paying Up for the AI Platform Story
Under valuation model assumptions realized through 12/31/28, the stock is modeled using:
- Revenue Growth (CAGR): 19.9%
- Operating Margins: 31.0%
- Exit P/E Multiple: 25.0x
Based on these inputs, the model estimates a target price of $154, implying a 23.6% total return and an annualized return of 9.2% over the next 2.4 years.
ServiceNow’s valuation model reflects a company still expected to grow near 20% annually, even after years of scaling. That 19.9% revenue growth assumption sits close to the company’s own five-year average of 24.1%, suggesting the model isn’t demanding acceleration, just continuation of an already strong trend. The 31.0% operating margin estimate also tracks closely with ServiceNow’s recent quarterly performance near 29.5%.
The 25.0x exit multiple looks reasonable next to ServiceNow’s own ten-year average near 69.2x, a legacy of its earlier hypergrowth years when profitability mattered less to investors. Today’s more moderate multiple, paired with continued double-digit growth, is part of why the stock still entered this earnings report down roughly a third for the year despite consistently beating estimates.
What separates ServiceNow from typical enterprise software peers is that its AI narrative now shows up directly in contract value rather than only in product announcements. Crossing $1 billion in annual AI contract value, on pace toward a $1.5 billion year-end target, provides real support for the growth assumption.
The annualized return of 9.2% sits just below the 10% ownership threshold many investors use as a baseline, meaning the stock looks moderately attractive rather than deeply undervalued at current levels.
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ServiceNow vs. the Enterprise Software Field
Salesforce (CRM) offers the most direct comparison, since both companies compete for enterprise workflow and customer relationship budgets while racing to monetize AI agents. ServiceNow’s subscription revenue growth of 23% in constant currency outpaced Salesforce’s more moderate single-digit growth in recent quarters, helping explain why ServiceNow has drawn renewed investor attention even after a difficult first half of the year.
IBM (IBM) presents a cautionary contrast rather than a direct rival, after the company’s preliminary results earlier this year missed expectations and reignited fears that AI could disrupt legacy software budgets broadly. ServiceNow’s ability to grow subscription revenue 23% in that same environment, while IBM’s software business struggled, suggests the disruption fear applied unevenly across the sector rather than uniformly.
On profitability, ServiceNow’s 31.0% model operating margin assumption sits ahead of many software peers still investing heavily to build competing AI platforms from scratch. That margin advantage, combined with a renewal rate of 98% last quarter, reinforces why ServiceNow’s platform approach, one system governing AI agents across any cloud or model, has become a selling point against point-solution competitors.
What’s Driving NOW Stock Going Forward?
The most immediate catalyst is whether AI annual contract value keeps accelerating toward management’s $1.5 billion year-end target. Net-new AI contract growth already accelerated more than 40% sequentially last quarter, and sustaining that pace would support the stock’s premium relative to slower-growing software peers.
Governance positioning is becoming a competitive advantage worth tracking. ServiceNow’s AI Control Tower, which manages token consumption, enforces policy, and can shut down AI agents that behave unexpectedly, has drawn partnerships with Nvidia and Microsoft, embedding ServiceNow deeper into how enterprises deploy AI safely.
Cybersecurity expansion offers another avenue for growth beyond ServiceNow’s traditional IT service management roots. McDermott’s description of a “10-figure” cybersecurity business growing faster than dedicated security vendors suggests the company is successfully diversifying its revenue base, which could reduce sensitivity to any single product category.
Finally, remaining performance obligations of $29 billion give investors real visibility into future revenue, and continued growth in longer-duration, multi-product deals would reinforce that enterprises are treating ServiceNow as a long-term platform bet rather than a short-term software purchase.
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Should You Invest in ServiceNow?
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Pull up NOW, and you’ll see years of historical financials, what Wall Street analysts expect for revenue and earnings in the quarters ahead, how valuation multiples have moved over time, and whether price targets are trending up or down.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
