ServiceNow (NYSE:NOW) grew total revenue 24% in its fiscal second quarter of 2026. Yet investors now pay a far smaller premium for its earnings than they did for most of the past five years. Something doesn’t add up, and the answer matters for anyone weighing the stock before the company reports again later this month.
The business itself is easy to miss but hard to avoid. ServiceNow sells cloud software that big oerganizations use to run IT help desks, HR requests, customer service, and security workflows, all on one platform. Customers pay recurring subscriptions, which brought in $3.88 billion of the $3.99 billion in total revenue last quarter. That model, now layered with AI agents, puts it among 11 Best Agentic AI Stocks to Buy Right Now. So is the market spotting a crack in the story, or simply marking down a business that keeps delivering? The answer hinges on whether a costly buying spree strengthens the platform or muddies it.
Contracts That Don’t Walk Away
ServiceNow’s edge is how deeply it embeds itself. Once a company routes thousands of employee requests through one system, ripping it out means retraining staff and rebuilding processes. That stickiness shows up in the numbers.
Remaining performance obligations (contracted revenue not yet recognized) reached $29.0 billion, up 21%. The portion due over the next 12 months, called cRPO, hit $13.20 billion, also up 21%. And 658 customers now pay more than $5 million in annual contract value/ACV, up about 23%.
Big deals are still landing too. The company closed 123 transactions worth more than $1 million in net new ACV in the quarter, a count that grew nearly 40%.
AI Money, Not Just AI Talk
The bigger question is whether AI widens that moat or threatens it. So far, the evidence leans toward widening. ServiceNow’s AI products passed $1 billion in annual contract value, and CEO Bill McDermott said agentic deployments grew ninefold in nine months.
Management is also spending to build out the platform. ServiceNow paid $7.451 billion in cash for acquisitions in the quarter, folding Armis and Veza into a new security and risk offering and Moveworks into its Otto AI experience. The security push places it closer to a cloud-native cybersecurity leader that investors often compare it with, which puts it among the 10 Best Cloud Computing Stocks to Buy According to Billionaires. The company also raised its full-year subscription revenue outlook to between $15.76 billion and $15.78 billion, representing 22.5% growth.
Is Growth Already Slowing?
Here’s the catch. Subscription revenue grew 24.5% in the second quarter, but management guided for just 20.5% in the third. Expected cRPO growth also cools to 19.5%.
The income statement tells a messier story, too. GAAP operating margin was only 4%, against 29.5% on an adjusted, or non-GAAP, basis. GAAP earnings came in at $0.29 per share, versus $0.90 adjusted. That’s a wide gap, and buying growth can make the underlying pace harder to read. The same debate over automation reshaping traditional software follows robotic process automation specialists as well.
Still, guiding to 20%-plus growth at this scale, with a 35% free cash flow margin target for the year, hardly signals a business in retreat. Slower, yes. Broken, no.
A Premium That Shrank
ServiceNow trades at about 34.64 times forward earnings, as of October 9. That’s well below its 5-year average of 57.13. Put simply, investors are paying far less for each dollar of expected profit than they were used to. It still isn’t cheap against the broader sector, which trades at 23.23 times earnings. But analysts expect earnings to grow 23.08% in 2027, a growth rate that helps explain the gap. Paying a premium to the group for growth at that level looks reasonable rather than stretched, particularly as investors weigh higher-priced tech names against the 8 Undervalued Software Stocks to Buy Now.
The buyback adds support. ServiceNow repurchased $2.225 billion of stock in the first half of the year, though none in the second quarter. Professional money seems to be warming up. Hedge fund interest rose, with 115 funds holding the stock in the most recent quarter, up from 108 in the prior one. Short interest sits at 2.79% of the float, which points to relatively limited bearish positioning.
Growth on Sale, With Strings Attached
The evidence suggests the market has priced in more slowdown than the business has shown. Backlog is still growing at 21%, AI revenue is real, and the multiple sits far below its long-run norm. That setup suits patient growth investors comfortable with acquisition integration and a few quarters of messy GAAP results. What would change the picture is cRPO growth slipping into the mid-teens, a sign the deals are masking a slowing core rather than accelerating it.
While we acknowledge the risk and potential of NOW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NOW and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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