ServiceNow, Inc. (NYSE:NOW) is still growing revenue at more than 20% as the AI business continues to expand. But with the stock valued at nearly $139 billion, that growth needs to translate into much more cash generation before today’s price can look inexpensive.
The company’s growing momentum in the AI space was recently highlighted in our list of 11 Best Agentic AI Stocks to Buy Right Now. The list examines businesses positioned to benefit as autonomous AI agents become increasingly integrated into enterprise workflows.
ServiceNow had a market cap of about $138.9 billion at the October 2 closing price of $134.38 a share. Since GAAP earnings are reduced by stock-based compensation and acquisition-related charges, headline P/E multiple doesn’t provide a complete valuation picture.
ServiceNow’s six-month filing also shows $1.2 billion of stock-based compensation. That’s an economic cost that investors should keep in mind, even though it doesn’t reduce reported FCF. That said, free cash flow offers a clearer valuation view at this time than the PE multiple.
ServiceNow’s Growth Strong As AI Business Expands
ServiceNow, Inc.’s revenue grew 24% YoY to $3.99 billion in Q2. Subscription revenue increased even faster at 24.5% YoY to $3.88 billion. Current remaining performance obligations jumped 21% to $13.2 billion. That pushed total remaining performance obligations up to $29 billion.
AI is becoming a bigger part of that growth story. ServiceNow’s AI offerings surpassed $1 billion in annual contract value in Q2. Agentic AI deployments rose ninefold over nine months. The company reported 123 transactions above $1 million in net new annual contract value, reflecting a growth of nearly 40% YoY.
ServiceNow’s early success in commercializing agentic AI solutions has also strengthened its position among enterprise software companies benefiting from the next phase of artificial intelligence adoption.
That’s one reason Broyhill Maintains Confidence in ServiceNow (NOW).
For 2026, ServiceNow is guiding for subscription revenue of $15.76 billion to $15.78 billion. That represents 22.5% YoY growth on the company’s reported basis. Can those gains keep flowing through to cash?
ServiceNow Needs to Produce Much More Cash to Justify Its Valuation
ServiceNow’s non-GAAP free cash flow during the first six months of 2026 was $2.3 billion. That was up from $2.01 billion a year ago. However, the 2026 figure includes $297 million in adjustments for business combination and related costs. Excluding these adjustments, operating cash flow less capital expenditures was approximately $2 billion, nearly unchanged from a year earlier. Annualizing the $2.3 billion non-GAAP FCF figure produces roughly $4.6 billion of FCF. Against ServiceNow’s $138.9 billion market value, that implies roughly 30X annualized non-GAAP FCF. However, the calculation does not account for cash flow seasonality or the company’s anticipated improvement in full-year FCF margins.
ServiceNow, Inc. expects to achieve 35% in non-GAAP FCF margin for 2026. Applying that margin to the expected subscription revenue alone implies roughly $5.5 billion in non-GAAP FCF, although the company’s 35% margin target applies to total revenue, making this a conservative illustration.
Although this is an illustration, it offers a clearer valuation snapshot given that the subscription business accounts for the vast majority of the company’s revenue.
At $5 billion, today’s market value implies about 28X FCF multiple. At $6 billion, it would be 23X. At $7 billion, it would be about 20X, and $8 billion would put it near 17X.
That’s what investors are paying for.
So, the bullish case depends heavily on ServiceNow increasing customer spending on the AI platform and producing free cash flow well beyond today’s annualized pace of around $4.6 billion. If it can achieve that, the stock’s current valuation would become easier to defend. But the bull case weakens if AI monetization takes longer than expected and margins expansion fails. If growth slows before cash generation catches up, the premium would be much more difficult to justify.
Investor Positioning Suggests Constructive View
ServiceNow has attracted the attention of prominent institutional investors. In fact, stock was among the AI-focused holdings highlighted in Ray Dalio’s Fund Was Buying These 2 AI Stocks, reflecting growing investor interest in companies benefiting from enterprise AI adoption and digital workflow automation.
According to Insider Monkey’s database, elite investors remain constructive on ServiceNow, Inc.. The number of hedge funds holding the stock increased to 115 in Q2 from 108 in Q1. Short interest edged down to 2.8% from 2.9%.
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