The age of AI is upon us. A Chinese robot called “Lightning” just ran a half-marathon faster than any human in history. Videos can now be used to construct interactive 3D maps in record time. Software is now more efficient than ever thanks to AI agents handling tasks for you. This broad push to digitization is exactly what ServiceNow $NOW, an IT service management company, hopes to capitalize on. They’ve taken robotic process automation to the next level by taking one of the most mundane and repetitive jobs (handling support tickets) and making it less painful.
Everything seems on track. ServiceNow expects to see $30 billion in AI revenue by 2030, double the total revenues they’re expecting in 2026, yet the stock has sold off dramatically. In fact, the entire software sector recently lost roughly $1 trillion in market value in just a few weeks thanks to fears of AI disrupting traditional enterprise software. As always, we need to tune out the noise and see what’s really going on.
Revenue growth is the ground truth as to whether a company is disrupting. ServiceNow’s consistent 20% revenue growth and 80% gross margins may have investors wondering how the stock can possibly be underperforming the Nasdaq over the past five years.
The answer extends beyond just revenue growth. Not all revenues are equal, and while the vast majority of ServiceNow’s revenue growth is organic, it’s worth noting they have been on an acquisition spree lately.
In 2025 alone, the company made seven acquisitions, the largest of which was Moveworks for nearly $3 billion. Moveworks is an employee service software company that helps automate company support tasks, a natural fit for ServiceNow. However, NOW shares dropped significantly following the announcement. The market tends to dislike when companies make large acquisitions, but this one was especially concerning for NOW investors since Moveworks had only just reached $100 million in annual run rate (ARR) prior to being acquired. This means they didn’t directly add much to ServiceNow’s top line of over $15 billion per year. It also implies ServiceNow paid a hefty 30 times sales for Moveworks.
Rather than backing away from large purchases, ServiceNow set a record in 2026 with their largest acquisition ever: $7 billion for a cybersecurity firm called Armis which is said to have added just over 1% to the company’s 2026 revenue growth target. Two big acquisitions within a short period have caused investors to question whether ServiceNow is reaching their growth capacity and beginning to look for growth in adjacent sectors. How else do you explain an IT support automation firm purchasing a cybersecurity company? That hardly feels like it will generate much synergy. Management claims it will help transform the company into an “AI control tower” where customers can deploy their own AI agents as well as stop treats from malicious AI bots. We want to see all this “AI” turn into real revenue.
ServiceNow “Does” AI
In a world where Anthropic can decimate billions in market value by issuing a press release, we need to make sure ServiceNow is actually using AI to their advantage, not getting displaced by it. In our last piece on ServiceNow, we pointed to the growth of their Now Assist platform as a proxy for AI monetization. The company has since repackaged Now Assist as “Otto” after combining it with Moveworks’ conversational AI solutions. As of Q1-2026, the solution was growing at 70% year-over-year. That’s not bad when you consider it had already reached $600 million in ARR as of the end of 2025.
The Otto platform is marketed as an “agent for agents” with the goal of autonomously completing tasks like solving a multi-step support request or even setting up a Datadog integration. Outside of Now Assist – er, Otto – management also highlighted five key areas of “hypergrowth” in their latest earnings call:
- The Core IT Business which is said to grow with the expansion of code. According to management, as code volume increases 20 times by 2030, the volume of support tickets will rise in tandem.
- AI Security which they’re venturing into with their Armis acquisition.
- AI Native CRM which sounds a bit like what Salesforce is dominating in, but ServiceNow is taking a different approach. They’re hoping to help businesses combine “fragmented” operations and turn month-long processes into day-long ones.
- AI Native “Front Door” which combines Moveworks and ServiceNow’s conversational AI tools to create an agent that can search ServiceNow’s “unified portal” to gather information and answer questions. Management claims they’ve closed “many deals” above $1 million because of this.
- Workflow Data Fabric which helps companies organize and cleanse data from disparate sources.
Clearly, management sees AI as a tailwind, and it’s nice that they’ve summarized the key opportunities for investors. However, as long as Claude continues to rear its ugly head with their own AI tools, investors are going to worry. The company’s sunglass-clad CEO addressed this topic on their recent earnings call, saying:
“With [Claude] Mythos as one example, Security activity is skyrocketing. The actions run through this platform, alerts, tickets, actions, resolutions, they’re all revenue drivers for ServiceNow. Enterprises can’t afford experiments in today’s risk environment. They need ServiceNow as the strategic defense shield for the enterprise.”
ServiceNow’s “Cheap” Valuation
Last year, we concluded that ServiceNow’s valuation was “rich” but within striking distance. Back then the company sported a simple valuation ratio of roughly 17, a strong premium over our Tech Stock Catalog average. Today that has cratered to just 6, below that average, and well below the company’s own trailing four-quarter average of nearly 14.
Does this extreme decline in valuation present an opportunity? In the absence of a crystal ball, we have to turn to ServiceNow’s metrics. The company’s revenue growth today is similar to the growth they were showing last year. Their strong gross retention rate (renewal rate) of 97% shows that their product is sticky. (Compare this to the 90% “healthy” benchmark.) Their gross margins have remained strong at 81%, and their operating margins and net income have improved, meaning the company is not only growing, but also becoming more profitable.
Everything points to this being the same opportunity it was a year ago at a better price. But are there better ways to play the “agentification” thesis?
Is Salesforce a Threat to ServiceNow?
When we first wrote about ServiceNow two years ago, we described it as being like Salesforce $CRM, but for internal operations rather than external ones. A lot has changed in those two years, and the two companies are starting to look more and more similar.
Salesforce has a tool that directly rivals ServiceNow’s core offering. It’s called “service cloud”, and while it’s been around since 2009, it’s starting to integrate AI which makes it look a lot like what ServiceNow is doing. Service cloud is aimed at unifying support interactions across channels into a single console using AI agents. Additionally, Salesforce’s “Agentforce” helps organizations automate tasks that “the artist formerly known as Now Assist” could also perform. We know these companies are competitors because they both have a page on their websites listing all the reasons why they’re better than the other.
Historically, large enterprises have tended to use both Salesforce and ServiceNow concurrently, making the two peers more than competitors. As they race to do anything and everything with AI, their rivalry is likely to heat up. Forrester recently reported on the fact that these companies are beginning to encroach on each other, but highlighted the fact that they still have different specialties with Salesforce focused on external relationships and ServiceNow prioritizing internal operations. The research firm posed on obvious conclusion – the winner will be the firm that can effectively use enterprise data for AI agents. With “decades of knowledge” and access to heaps of proprietary operational workflow data, ServiceNow’s prospects look good.
Conclusion
While the market is firmly convinced that ServiceNow will be disrupted by AI, the numbers tell a different story. Without a significant slowdown in growth, a decline in margins, or a worsening gross retention rate, we have no substantial evidence that ServiceNow is facing any pressure from Claude or other “vibe coding” solutions. If anything, the company is utilizing AI for their benefit. Today’s reduced valuation may present an opportunity to exercise some Buffett wisdom and be greedy when others are fearful. Nanalyze Premium subscribers will be the first to know if we take any action regarding ServiceNow. In the meantime, we’ll be watching for any signs of cracks when we check in next year.
