The age of AI is upon us. A Chinese language robotic known as “Lightning” simply ran a half-marathon quicker than any human in historical past. Movies can now be used to assemble interactive 3D maps in file time. Software program is now extra environment friendly than ever because of AI brokers dealing with duties for you. This broad push to digitization is strictly what ServiceNow $NOW, an IT service administration firm, hopes to capitalize on. They’ve taken robotic course of automation to the subsequent stage by taking one of the mundane and repetitive jobs (dealing with assist tickets) and making it much less painful.
All the pieces appears on monitor. ServiceNow expects to see $30 billion in AI income by 2030, double the whole revenues they’re anticipating in 2026, but the inventory has offered off dramatically. The truth is, your complete software program sector lately misplaced roughly $1 trillion in market worth in just some weeks because of fears of AI disrupting conventional enterprise software program. As all the time, we have to tune out the noise and see what’s actually occurring.
Income development is the bottom reality as as to whether an organization is disrupting. ServiceNow’s constant 20% income development and 80% gross margins could have traders questioning how the inventory can presumably be underperforming the Nasdaq over the previous 5 years.
The reply extends past simply income development. Not all revenues are equal, and whereas the overwhelming majority of ServiceNow’s income development is natural, it’s price noting they’ve been on an acquisition spree currently.
In 2025 alone, the corporate made seven acquisitions, the biggest of which was Moveworks for practically $3 billion. Moveworks is an worker service software program firm that helps automate firm assist duties, a pure match for ServiceNow. Nevertheless, NOW shares dropped considerably following the announcement. The market tends to dislike when corporations make massive acquisitions, however this one was particularly regarding for NOW traders since Moveworks had solely simply reached $100 million in annual run rate (ARR) previous to being acquired. This implies they didn’t straight add a lot to ServiceNow’s prime line of over $15 billion per yr. It additionally implies ServiceNow paid a hefty 30 instances gross sales for Moveworks.
Relatively than backing away from massive purchases, ServiceNow set a file in 2026 with their largest acquisition ever: $7 billion for a cybersecurity agency known as Armis which is claimed to have added simply over 1% to the corporate’s 2026 income development goal. Two huge acquisitions inside a brief interval have brought on traders to query whether or not ServiceNow is reaching their development capability and starting to search for development in adjoining sectors. How else do you clarify an IT assist automation agency buying a cybersecurity firm? That hardly appears like it’ll generate a lot synergy. Administration claims it’ll assist rework the corporate into an “AI management tower” the place clients can deploy their very own AI brokers in addition to cease treats from malicious AI bots. We need to see all this “AI” flip into actual income.
ServiceNow “Does” AI
In a world the place Anthropic can decimate billions in market worth by issuing a press launch, we want to verify ServiceNow is definitely utilizing AI to their benefit, not getting displaced by it. In our final piece on ServiceNow, we pointed to the expansion of their Now Help platform as a proxy for AI monetization. The corporate has since repackaged Now Help as “Otto” after combining it with Moveworks’s conversational AI options. As of Q1-2026, the answer was rising at 70% year-over-year. That’s not dangerous when you think about it had already reached $600 million in ARR as of the tip of 2025.
The Otto platform is marketed as an “agent for brokers” with the aim of autonomously finishing duties like fixing a multi-step assist request and even organising a Datadog integration. Exterior of Now Help – er, Otto – administration additionally highlighted 5 key areas of “hypergrowth” of their newest earnings name:
- The Core IT Enterprise which is claimed to develop with the enlargement of code. In keeping with administration, as code quantity will increase 20 instances by 2030, the quantity of assist tickets will rise in tandem.
- AI Safety which they’re venturing into with their Armis acquisition.
- AI Native CRM which sounds a bit like what Salesforce is dominating in, however ServiceNow is taking a special method. They’re hoping to assist companies mix “fragmented” operations and switch month-long processes into day-long ones.
- AI Native “Entrance Door” which mixes Moveworks and ServiceNow’s conversational AI instruments to create an agent that may search ServiceNow’s “unified portal” to assemble info and reply questions. Administration claims they’ve closed “many offers” above $1 million due to this.
- Workflow Knowledge Material which helps corporations arrange and cleanse information from disparate sources.
Clearly administration sees AI as a tailwind, and it’s good that they’ve summarized the important thing alternatives for traders. Nevertheless, so long as Claude continues to rear its ugly head with their very own AI instruments, traders are going to fret. The corporate’s sunglass-clad CEO addressed this subject on their latest earnings name, saying:
“With [Claude] Mythos as one instance, Safety exercise is skyrocketing. The actions run by means of this platform, alerts, tickets, actions, resolutions, they’re all income drivers for ServiceNow. Enterprises can’t afford experiments in at present’s threat setting. They want ServiceNow because the strategic protection protect for the enterprise.”
ServiceNow’s “Low cost” Valuation
Final yr, we concluded that ServiceNow’s valuation was “wealthy” however inside placing distance. Again then the corporate sported a easy valuation ratio of roughly 17, a powerful premium over our Tech Inventory Catalog common. Right now that has cratered to simply 6, beneath that common, and properly beneath the corporate’s personal trailing four-quarter common of practically 14.
Does this excessive decline in valuation current a possibility? Within the absence of a crystal ball, now we have to show to ServiceNow’s metrics. The corporate’s income development at present is just like the expansion they had been exhibiting final yr. Their robust gross retention fee (renewal fee) of 97% exhibits that their product is sticky. (Examine this to the 90% “wholesome” benchmark.) Their gross margins have remained robust at 81%, and their working margins and web revenue have improved, that means the corporate just isn’t solely rising, but in addition turning into extra worthwhile.
All the pieces factors to this being the identical alternative it was a yr in the past at a greater worth. However are there higher methods to play the “agentification” thesis?
Is Salesforce a Risk to ServiceNow?
After we first wrote about ServiceNow two years in the past, we described it as being like Salesforce $CRM, however for inner operations somewhat than exterior ones. Quite a bit has modified in these two years, and the 2 corporations are beginning to look an increasing number of related.
Salesforce has a instrument that straight rivals ServiceNow’s core providing. It’s known as “service cloud”, and whereas it’s been round since 2009, it’s beginning to combine AI which makes it look so much like what ServiceNow is doing. Service cloud is aimed toward unifying assist interactions throughout channels right into a single console utilizing AI brokers. Moreover, Salesforce’s “Agentforce” helps organizations automate duties that ‘the artist previously referred to as Now Help’ may additionally carry out. We all know these corporations are rivals as a result of they each have a web page on their web sites itemizing all of the explanation why they’re higher than the opposite.
Traditionally, massive enterprises have tended to make use of each Salesforce and ServiceNow concurrently, making the 2 friends greater than rivals. As they race to do something and all the things with AI, their rivalry is more likely to warmth up. Forrester lately reported on the truth that these corporations are starting to encroach on one another, however highlighted the truth that they nonetheless have totally different specialties with Salesforce centered on exterior relationships and ServiceNow prioritizing inner operations. The analysis agency posed on apparent conclusion – the winner would be the agency that may successfully use enterprise information for AI brokers. With “many years of information” and entry to heaps of proprietary operational workflow information, ServiceNow’s prospects look good.
Conclusion
Whereas the market is firmly satisfied that ServiceNow might be disrupted by AI, the numbers inform a special story. With no vital slowdown in development, a decline in margins, or a worsening gross retention fee, now we have no substantial proof that ServiceNow is dealing with any strain from Claude or different “vibe coding” options. If something, the corporate is using AI for his or her profit. Right now’s lowered valuation could current a possibility to train some Buffett knowledge and be grasping when others are fearful. Nanalyze Premium subscribers would be the first to know if we take any motion relating to ServiceNow. Within the meantime, we’ll be awaiting any indicators of cracks once we verify in subsequent yr.
