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ServiceNow Jumps 25% in 3 Months: Buy, Sell or Hold the Stock?
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Key Takeaways
ServiceNow AI topped $1B in ACV in Q2 2026, with net new AI ACV rising more than 40% sequentially.
NOW's subscription revenues rose 24.5% to $3.88B as enterprise demand expanded across multiple domains.
ServiceNow faces AI competition, margin pressure and acquisition risks while trading at a premium valuation.
ServiceNow (NOW - Free Report) shares have jumped 25% in the past three months, outperforming the broader Zacks Computer and Technology sector’s return of 2%, reflecting improving investor confidence in the company’s AI monetization strategy, strong second-quarter 2026 execution and an increasingly diversified growth profile. AI momentum has been another important driver behind NOW’s recent price strength. The company is also benefiting from broadening demand beyond ServiceNow’s traditional IT service-management franchise. Let’s delve deep to find out whether these drivers are enough for investors to take a position in the NOW stock.
Growing AI Monetization Opportunity to Aid NOW’s Prospects
ServiceNow AI surpassed $1 billion in Annual Contract Value (ACV) during the second quarter of 2026, with net new AI ACV growing more than 40% sequentially. Deals involving five or more ServiceNow AI products increased significantly year over year, while the number of customers running Agentic AI in production increased ninefold over the past nine months. First-time Agentic AI buyer deal volume rose more than 45% year over year, while upgrades to AI-native SKUs are generating price uplifts in the company’s targeted 20-30% range.
ServiceNow’s expanding Agentic AI portfolio is expected to remain the primary catalyst over the long term. Products such as Otto, AI Control Tower, Autonomous Workforce AI specialists, Context Engine, Autonomous Data Analytics and Action Fabric broaden the company’s ability to automate complete enterprise workflows rather than merely provide AI assistance. The company is already tracking ahead of its long-term objective for AI to account for 30% of ACV by 2030, suggesting considerable room for higher consumption and cross-selling as enterprise deployments move from pilots into production.
These factors are expected to drive subscription revenues, which increased 24.5% year over year to $3.88 billion in the second quarter of 2026. Constant-currency (cc) subscription growth of 23% exceeded the high end of guidance by 150 basis points (bps). Current Remaining Performance Obligation (RPO) increased 21.5% in cc, while ServiceNow recorded 123 transactions carrying more than $1 million in net new ACV, up nearly 40% year over year. ServiceNow has also outlined long-term targets of more than $30 billion in subscription revenues.
ServiceNow is benefiting from expanding demand across multiple domains. ITOM featured in 18 of the top 20 second-quarter deals, while security and risk solutions were included in 16. CRM and Industry workflows were also represented in 16 of the top 20 deals, supported by momentum in CPQ, sales and order management. EmployeeWorks deal volumes surged more than 150% sequentially, while RaptorDB Pro deal volume climbed 80% year over year. A 98% renewal rate and increasing adoption of multiple products by large customers underscore the platform’s expanding wallet share.
Cybersecurity represents another important growth avenue for NOW. Integrating Armis’ cyber-asset intelligence and Veza’s identity-governance capabilities with ServiceNow Security Operations creates a broader platform spanning asset visibility, identity security, risk controls and automated responses. NOW’s strong partner base that includes NVIDIA, Microsoft (MSFT - Free Report) , AWS and Accenture extends AI Control Tower and Agentic AI capabilities across major enterprise ecosystems, while collaborations with Experian, Lenovo, FedEx and TeamViewer broaden industry use cases.
NOW to Suffer From Stiff Competition, Margin Pressure
ServiceNow has been suffering from investor concerns about increasing AI competition, premium valuation, execution risks around acquisitions and elevated expectations. NOW’s SaaS business model has suffered from strong adoption of AI-native solutions. Intensifying competition from Microsoft, Oracle (ORCL - Free Report) and Salesforce (CRM - Free Report) has been a headwind for the company. Shares of Oracle have dropped 20.9%, while Microsoft and Salesforce have returned 22% and 41.7%, respectively.
NOW Stock’s Price Performance
Image Source: Zacks Investment Research
ServiceNow is facing stiff competition from Microsoft, Oracle and Salesforce as these players are investing significantly to deliver enterprise AI agents, workflow orchestration, governance, security, AI copilots and enterprise data integration.
ServiceNow faces near-term margin pressure as it expands its AI and cybersecurity capabilities. The company expects fiscal 2026 subscription gross margin of 81%, with higher usage of hyperscaler partnerships and accelerating AI adoption weighing on profitability. The Armis acquisition alone is expected to reduce full-year subscription gross margin by roughly 25 bps, operating margin by around 75 bps and free cash flow margin by approximately 200 bps.
Acquisition-related execution and balance-sheet risks have also increased. ServiceNow acquired Armis for approximately $7.6 billion and Veza for roughly $1.2 billion, substantially expanding its security portfolio. To help finance Armis, ServiceNow issued $4 billion of senior notes, while commercial paper outstanding totaled $2.1 billion as of June 30, 2026. Acquisition-related costs totaled $101 million in the first six months of 2026, while the transactions substantially increased goodwill and intangible assets.
The Zacks Consensus Estimate for NOW’s 2026 earnings has declined 6 cents to $4.07 per share over the past 60 days and indicates 15.95% growth from 2025’s reported figure. The consensus mark for NOW’s third-quarter 2026 earnings estimate is currently pegged at $1.03 per share, down four cents over the past 30 days and suggests 7.29% growth over the figure reported in the year-ago quarter.
The Zacks Consensus Estimate for NOW’s 2026 revenues is pegged at $16.20 billion and indicates 22.02% growth from 2025’s reported figure. The consensus mark for NOW’s third-quarter 2026 revenues is currently pegged at $4.1 billion, suggesting 20.27% growth over the figure reported in the year-ago quarter.
ServiceNow Stock Trades at a Premium
ServiceNow stock has a Value Score of D, which suggests a stretched valuation at this moment.
The stock is trading at a premium, with a forward 12-month price/sales of 8X, higher than the broader sector’s 6.09X, Salesforce’s 4.36X and Oracle’s 4.55X. However, NOW shares are trading below Microsoft’s P/S multiple of 9.22.
NOW Stock’s Valuation
Image Source: Zacks Investment Research
Conclusion
ServiceNow continues to post strong subscription growth driven by robust enterprise demand and accelerating AI adoption. However, the company’s strong execution has been overshadowed by investor concerns that AI leaders such as Microsoft, Oracle and Salesforce are rapidly expanding into workflow automation, AI agents and enterprise governance – areas that have historically differentiated ServiceNow. This, along with a stretched valuation, makes the stock a risky bargain for investors.
ServiceNow currently has a Zacks Rank #4 (Sell), which implies that investors should avoid the stock for the time being.
View the Zacks #1 Rank List
Image: Bigstock
ServiceNow Jumps 25% in 3 Months: Buy, Sell or Hold the Stock?
Key Takeaways
ServiceNow (NOW - Free Report) shares have jumped 25% in the past three months, outperforming the broader Zacks Computer and Technology sector’s return of 2%, reflecting improving investor confidence in the company’s AI monetization strategy, strong second-quarter 2026 execution and an increasingly diversified growth profile. AI momentum has been another important driver behind NOW’s recent price strength. The company is also benefiting from broadening demand beyond ServiceNow’s traditional IT service-management franchise. Let’s delve deep to find out whether these drivers are enough for investors to take a position in the NOW stock.
Growing AI Monetization Opportunity to Aid NOW’s Prospects
ServiceNow AI surpassed $1 billion in Annual Contract Value (ACV) during the second quarter of 2026, with net new AI ACV growing more than 40% sequentially. Deals involving five or more ServiceNow AI products increased significantly year over year, while the number of customers running Agentic AI in production increased ninefold over the past nine months. First-time Agentic AI buyer deal volume rose more than 45% year over year, while upgrades to AI-native SKUs are generating price uplifts in the company’s targeted 20-30% range.
ServiceNow’s expanding Agentic AI portfolio is expected to remain the primary catalyst over the long term. Products such as Otto, AI Control Tower, Autonomous Workforce AI specialists, Context Engine, Autonomous Data Analytics and Action Fabric broaden the company’s ability to automate complete enterprise workflows rather than merely provide AI assistance. The company is already tracking ahead of its long-term objective for AI to account for 30% of ACV by 2030, suggesting considerable room for higher consumption and cross-selling as enterprise deployments move from pilots into production.
These factors are expected to drive subscription revenues, which increased 24.5% year over year to $3.88 billion in the second quarter of 2026. Constant-currency (cc) subscription growth of 23% exceeded the high end of guidance by 150 basis points (bps). Current Remaining Performance Obligation (RPO) increased 21.5% in cc, while ServiceNow recorded 123 transactions carrying more than $1 million in net new ACV, up nearly 40% year over year. ServiceNow has also outlined long-term targets of more than $30 billion in subscription revenues.
ServiceNow is benefiting from expanding demand across multiple domains. ITOM featured in 18 of the top 20 second-quarter deals, while security and risk solutions were included in 16. CRM and Industry workflows were also represented in 16 of the top 20 deals, supported by momentum in CPQ, sales and order management. EmployeeWorks deal volumes surged more than 150% sequentially, while RaptorDB Pro deal volume climbed 80% year over year. A 98% renewal rate and increasing adoption of multiple products by large customers underscore the platform’s expanding wallet share.
Cybersecurity represents another important growth avenue for NOW. Integrating Armis’ cyber-asset intelligence and Veza’s identity-governance capabilities with ServiceNow Security Operations creates a broader platform spanning asset visibility, identity security, risk controls and automated responses. NOW’s strong partner base that includes NVIDIA, Microsoft (MSFT - Free Report) , AWS and Accenture extends AI Control Tower and Agentic AI capabilities across major enterprise ecosystems, while collaborations with Experian, Lenovo, FedEx and TeamViewer broaden industry use cases.
NOW to Suffer From Stiff Competition, Margin Pressure
ServiceNow has been suffering from investor concerns about increasing AI competition, premium valuation, execution risks around acquisitions and elevated expectations. NOW’s SaaS business model has suffered from strong adoption of AI-native solutions. Intensifying competition from Microsoft, Oracle (ORCL - Free Report) and Salesforce (CRM - Free Report) has been a headwind for the company. Shares of Oracle have dropped 20.9%, while Microsoft and Salesforce have returned 22% and 41.7%, respectively.
NOW Stock’s Price Performance
Image Source: Zacks Investment Research
ServiceNow is facing stiff competition from Microsoft, Oracle and Salesforce as these players are investing significantly to deliver enterprise AI agents, workflow orchestration, governance, security, AI copilots and enterprise data integration.
ServiceNow faces near-term margin pressure as it expands its AI and cybersecurity capabilities. The company expects fiscal 2026 subscription gross margin of 81%, with higher usage of hyperscaler partnerships and accelerating AI adoption weighing on profitability. The Armis acquisition alone is expected to reduce full-year subscription gross margin by roughly 25 bps, operating margin by around 75 bps and free cash flow margin by approximately 200 bps.
Acquisition-related execution and balance-sheet risks have also increased. ServiceNow acquired Armis for approximately $7.6 billion and Veza for roughly $1.2 billion, substantially expanding its security portfolio. To help finance Armis, ServiceNow issued $4 billion of senior notes, while commercial paper outstanding totaled $2.1 billion as of June 30, 2026. Acquisition-related costs totaled $101 million in the first six months of 2026, while the transactions substantially increased goodwill and intangible assets.
NOW’s Earnings Estimate Revision Shows Downward Trend
The Zacks Consensus Estimate for NOW’s 2026 earnings has declined 6 cents to $4.07 per share over the past 60 days and indicates 15.95% growth from 2025’s reported figure. The consensus mark for NOW’s third-quarter 2026 earnings estimate is currently pegged at $1.03 per share, down four cents over the past 30 days and suggests 7.29% growth over the figure reported in the year-ago quarter.
ServiceNow, Inc. Price and Consensus
ServiceNow, Inc. price-consensus-chart | ServiceNow, Inc. Quote
The Zacks Consensus Estimate for NOW’s 2026 revenues is pegged at $16.20 billion and indicates 22.02% growth from 2025’s reported figure. The consensus mark for NOW’s third-quarter 2026 revenues is currently pegged at $4.1 billion, suggesting 20.27% growth over the figure reported in the year-ago quarter.
ServiceNow Stock Trades at a Premium
ServiceNow stock has a Value Score of D, which suggests a stretched valuation at this moment.
The stock is trading at a premium, with a forward 12-month price/sales of 8X, higher than the broader sector’s 6.09X, Salesforce’s 4.36X and Oracle’s 4.55X. However, NOW shares are trading below Microsoft’s P/S multiple of 9.22.
NOW Stock’s Valuation
Image Source: Zacks Investment Research
Conclusion
ServiceNow continues to post strong subscription growth driven by robust enterprise demand and accelerating AI adoption. However, the company’s strong execution has been overshadowed by investor concerns that AI leaders such as Microsoft, Oracle and Salesforce are rapidly expanding into workflow automation, AI agents and enterprise governance – areas that have historically differentiated ServiceNow. This, along with a stretched valuation, makes the stock a risky bargain for investors.
ServiceNow currently has a Zacks Rank #4 (Sell), which implies that investors should avoid the stock for the time being.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.