ServiceNow (NOW) has struggled in the market, with its stock under heavy selling pressure. NOW the stock is down nearly 40% year-to-date and down nearly 52% over the past twelve months and is nearing its 52-week low.
The significant selloff reflects growing concerns about the impact of artificial intelligence (AI) on the broader software industry. Investors are increasingly wary that advances in agent AI could reduce reliance on traditional business workflow solutions. This fear has survived many iterations of valuations across the industry, and ServiceNow has not been spared.
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Selling pressure intensified following ServiceNow’s first-quarter earnings. Although ServiceNow delivered strong earnings, the market reaction was negative, with the stock falling 17.8% the next day.
Management has shown some weakness in subscription revenue due to delayed deals in the Middle East amid ongoing tensions in the country. Meanwhile, near-term margin pressure related to the Armis acquisition weighed on NOW stock.
Despite these storms, ServiceNow’s fundamentals remain strong. It continues to generate strong growth in subscription revenue and residual operating obligations (RPO), while customer deal metrics remain strong.
Importantly, ServiceNow is seeing meaningful acceleration in AI-driven revenue contributions, with the company now projecting $1.5 billion in AI-specific liabilities by 2026. Adoption of Now Assist, its AI-powered system, has been overwhelming.
ServiceNow Sees Strong Growth
ServiceNow reported a strong first quarter, and its growth trajectory remains strong. The company’s subscription revenue reached $3.67 billion, up 19% year-over-year (YoY) in constant currency. The growth came despite a modest headwind caused by delays in the closing of several major deals in the Middle East due to regional conflicts. RPO stood at $27.7 billion, up 23.5%, providing an indication of strong demand.
The company’s current RPO came in at $12.64 billion, growing by 21%. During that time, the renewal rate remained high at 97%, including contributions from Moveworks, recently acquired by ServiceNow. In addition, ServiceNow’s customer base continues to grow meaningfully, with 630 clients now generating more than $5 million in annual contract value (ACV). Major deal activity remains healthy, with several high-value deals signed during the quarter.
Consumer spending patterns are also evolving. The number of customers spending more than $1 million per year jumped 130% YoY. Moveworks, now integrated with ServiceNow’s work experience division, is already making significant contributions, closing several seven-person deals, and seeing rapid expansion.
A key highlight is the increasing adoption of many products in its space. Most of the company’s major deals now include a broad mix of offerings, reflecting deeper platform integration. In addition, the demand for AI-powered solutions is strong. The Now Assist suite is proving strong demand and is on track to deliver significant revenue. At the same time, other AI-related products, including AI Control Tower and Raptor DB Pro, are also benefiting. This demand translates into larger deal sizes and higher acquisition rates.
ServiceNow’s profits also improved during the quarter. Operating margins improved, supported by AI-related financial synergies, while free cash flow remained strong. The company also returned significant capital to shareholders through a major share repurchase program.
Looking ahead, ServiceNow has raised its full-year outlook, reporting strong revenue growth despite global uncertainty. Overall, ServiceNow is well positioned to deliver strong growth, driven by high renewal rates, a growing customer base, and strong demand for its AI capabilities.
Is NOW Stock a buy?
ServiceNow faces near-term risks, including delays in geopolitical deals and merger-related margin pressure. In addition, the fear of industry-wide disruption from AI poses challenges. However, its strong retention rate, growing business footprint, and accelerating AI monetization point to a strong and growing business.
Given the downside, the stock NOW trades at 34 forward earnings which seems reasonable given its growth profile. Analysts predict that NOW’s EPS will increase by more than 26% in 2026, followed by 27.5% in 2027.
For long-term investors, this pullback in stocks NOW provides a strong entry point. Wall Street analysts are also bullish and maintain a “Strong Buy” rating on the stock.
As of the date of publication, Amit Singh had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
