ServiceNow's AI Ambitions Fuel Bullish Outlook Amid Market Volatility
NEW YORK – While the broader software sector faces headwinds, ServiceNow, Inc. (NYSE: NOW) is drawing renewed investor scrutiny for its disciplined execution and rapidly maturing artificial intelligence product suite. The workflow automation leader recently posted a third-quarter performance that exceeded expectations, underscoring its resilience in a challenging macroeconomic environment.
As of late January, ServiceNow shares were trading around $117.01. The company's valuation metrics—a trailing P/E of 70.07 and a forward P/E of 27.93, per Yahoo Finance—reflect both its premium positioning and the market's anticipation of sustained growth.
"ServiceNow delivered what we call a 'quality beat,'" noted a market analyst familiar with the company's earnings. "It wasn't just about topping revenue numbers. The acceleration in AI monetization, coupled with expanding operating leverage, signals a business hitting its stride."
The San Diego-based company, which provides cloud-based digital workflow solutions globally, reported Q3 subscription revenue of $3.299 billion, a 20.5% year-over-year increase in constant currency. Perhaps more telling were the remaining performance obligations (RPO), a key indicator of future revenue. Current RPO grew 20.5% to $11.35 billion, while total RPO jumped 23% to approximately $24.3 billion, both significantly ahead of Wall Street forecasts.
Profitability metrics also impressed. Non-GAAP operating margin reached 33.5%, well above guidance, and the free cash flow margin stood at 17.5%. In response, management raised its full-year outlook, now projecting subscription revenue of about $12.84 billion and an operating margin of 31%.
Beyond its core IT service management (ITSM) dominance, ServiceNow is making tangible inroads in the competitive Customer Relationship Management (CRM) space. Rather than chasing feature parity with giants like Salesforce, the company is positioning its CRM offerings as a "system of action" designed to unify sales, service, and fulfillment workflows.
"CRM and industry-specific workflows were central to several large deals this quarter, including multiple transactions with over $1 million in net new annual contract value," a company insider shared. AI-powered Configure, Price, Quote (CPQ) software is acting as a strategic wedge, enabling ServiceNow to displace incumbents and secure sizable expansions within existing accounts.
The AI narrative is transitioning from promise to revenue. ServiceNow's AI products are on track to surpass $500 million in annual contract value (ACV) in 2025, with a $1 billion target set for 2026. This growth is fueled by the adoption of "agentic" AI, which automates complex, multi-step workflows. While most AI revenue remains subscription-based, the company anticipates consumption-based models will gain significance over time.
Despite the strong operational performance, NOW's stock has declined roughly 27% since April 2025, pressured by valuation compression across the software sector. This disconnect between business performance and stock price is at the heart of the current bullish thesis.
Market Voices:
"The numbers speak for themselves," says Michael Thorne, a portfolio manager at Crestline Advisors. "The RPO growth is phenomenal. It locks in visibility and demonstrates that enterprises are committing to ServiceNow as a strategic platform, not just a point solution. The margin expansion while growing at this scale is the holy grail."
"Everyone's obsessed with the AI dollar targets, but the real story is the operating leverage," argues Priya Chen, a technology analyst at Fairview Capital. "They're guiding margins up while investing heavily. That suggests the underlying engine is incredibly efficient. The CRM traction is a bonus that could open a massive new market."
"This is pure hopium masking a valuation crisis," fires back David R. Kellerman, an independent investor and frequent market commentator. "A forward P/E of 28 for a company whose growth is decelerating into the 20s? The AI revenue is a rounding error on a $12 billion base. The stock got ahead of itself, and this 'beat' is just a pause on the way down until they re-accelerate growth."
"The pullback creates an entry point," offers Sarah J. Li, a senior equity research associate. "For long-term investors, the question isn't about next quarter's volatility. It's whether ServiceNow can be the central workflow brain for the enterprise. Their execution suggests they can."
According to recent regulatory filings, 104 hedge funds held positions in ServiceNow at the end of Q3, a slight decrease from 106 in the prior quarter. The company was not among the top 30 most popular hedge fund holdings during that period.
Disclosure: This analysis is for informational purposes only and does not constitute financial advice.