TipRanks Smart Value #71: NOW’s Moment

Shrilekha Pethe on July 14, 2026

Dear Investors,

Welcome to the 71^st edition of the TipRanks Smart Value Newsletter.

This Week’s Top Value Pick: ServiceNow (NOW)

ServiceNow (NOW) is a leading enterprise software company that provides a cloud-based platform for automating digital workflows across IT, customer service, employee experiences, security, and business operations. Through its expanding portfolio of AI-powered workflow applications, CRM solutions, Workflow Data Fabric, and enterprise automation tools, the company helps organizations improve productivity, streamline operations, and accelerate digital transformation. As enterprises increasingly adopt generative AI and autonomous workflows, ServiceNow is well-positioned to deepen customer engagement, expand its recurring subscription revenue, and deliver sustainable long-term growth in revenue, earnings, and free cash flow.

Beyond Tickets

ServiceNow’s history reflects its evolution from a niche IT service management (ITSM) software provider into one of the world’s leading enterprise workflow and AI platform companies. Founded in 2004 by Fred Luddy, the company set out to replace the manual, fragmented IT service processes that dominated enterprise technology with a single cloud-based platform for automating digital workflows. Its Software-as-a-Service (SaaS) model, launched well before cloud computing became mainstream, enabled organizations to reduce costs, improve operational efficiency, and modernize IT operations, laying the foundation for a highly recurring subscription revenue business.

Following its initial public offering in 2012, ServiceNow steadily expanded beyond its core ITSM offering through a combination of product innovation and targeted acquisitions. The company broadened its platform to include IT Operations Management (ITOM), IT Asset Management (ITAM), Customer Service Management (CSM), Human Resources Service Delivery (HRSD), security operations, governance, risk and compliance, and low-code application development. By extending workflow automation across multiple enterprise functions, ServiceNow significantly expanded its addressable market while increasing customer spending through cross-selling and broader platform adoption.

Acquisitions have played an increasingly important role in supporting this expansion. Early transactions focused on strengthening the company’s core workflow and infrastructure capabilities. The acquisitions of Mirror42 in 2013 and Neebula Systems in 2014 strengthened ServiceNow’s analytics, cloud management, and IT operations capabilities. The company expanded its enterprise mobility offerings with the acquisition of SkyGiraffe in 2017, followed by VendorHawk in 2018, which enhanced its SaaS management capabilities. Subsequent acquisitions, including Loom Systems and Sweagle, both in 2020, and Element AI (2021), further broadened ServiceNow’s expertise in artificial intelligence for IT operations (AIOps), cloud infrastructure management, and low-code development. Together, these investments transformed ServiceNow from a pure ITSM vendor into a broader enterprise workflow platform.

As generative AI emerged as the next major technology cycle, management shifted its acquisition strategy toward building an enterprise AI platform instead of developing proprietary foundation models. Acquisitions such as G2K, Hitch Works, UltimateSuite, and Mission Secure expanded the company’s capabilities across operational technology, workforce planning, employee productivity, and cybersecurity. This strategy accelerated in 2025 and 2026 with the acquisitions of data.world, Logik.ai, Cuein AI, Moveworks, Pyramid Analytics, Traceloop, and ai.work, strengthening ServiceNow’s enterprise data platform, analytics, AI observability, industry-specific automation, and AI-powered employee experiences. Notably, Moveworks has since become the foundation of the company’s EmployeeWorks offering, extending AI-powered search and employee self-service capabilities across the platform.

Cybersecurity and AI governance have become another major pillar of the company’s strategy. The acquisition of Veza strengthened identity governance and access management across users, machines, and AI agents, while the $7.8 billion acquisition of Armis in 2026 – the largest acquisition in ServiceNow’s history – significantly expanded its cybersecurity platform by adding cyber-exposure management and real-time visibility across IT, operational technology (OT), Internet of Things (IoT), and medical devices. The transaction substantially expanded ServiceNow’s addressable market in security and risk management while advancing management’s vision to build an enterprise “AI control tower” that orchestrates AI-powered workflows across data, security, and governance.

This steady evolution from IT workflow automation to enterprise-wide digital transformation and AI has enabled ServiceNow to grow its subscription revenue consistently, deepen customer relationships, and maintain strong operating margins.

Compounding Contracts

ServiceNow generates the vast majority of its revenue through a recurring subscription model, providing enterprises with cloud-based software that automates workflows across IT operations, customer service, employee experiences, security, risk management, and business processes. Customers typically sign multi-year subscription contracts to access the company’s integrated platform, creating a highly predictable revenue stream supported by strong renewal rates and a large base of contracted future revenue. Professional services, including implementation, training, and customer support, represent a much smaller portion of revenue and are primarily designed to accelerate platform adoption.

A key driver of ServiceNow’s growth has been its ability to expand within existing customers. Many organizations initially adopt the platform for IT Service Management, and only afterward expand by acquiring additional products such as IT Operations Management, Customer Service Management, Human Resources Service Delivery, security operations, governance, risk and compliance, and low-code application development. This “land-and-expand” strategy gradually increases customer spending while strengthening retention, as more business-critical workflows become embedded within the platform.

Artificial intelligence is now extending this business model. ServiceNow is embedding AI across its entire platform through offerings such as Now Assist, Workflow Data Fabric, EmployeeWorks, AI Control Tower, and Action Fabric, extending AI beyond standalone assistants. Management is also transitioning toward a hybrid commercial model that combines predictable subscription commitments with consumption-based pricing for AI services, allowing revenue to grow as customers deploy more AI agents, automate additional workflows, and increase platform usage. The company expects higher-value AI bundles to command premium pricing while consumption-based AI services create an incremental growth opportunity as adoption expands.

Several structural advantages support the company’s long-term earnings and free cash flow outlook. ServiceNow’s single-platform architecture allows customers to automate workflows, access enterprise data, and govern AI across multiple business functions without managing separate systems, lowering implementation complexity and increasing switching costs. The company’s growing ecosystem of partners, including hyperscalers, consulting firms, and more than 2,500 applications in its marketplace, further expands customer adoption and accelerates new business.

As AI adoption increases, management believes every additional workflow, AI agent, and connected data source creates demand for more governance, data connectivity, and platform usage, reinforcing a virtuous growth cycle. Combined with its recurring subscription model, expanding product portfolio, and disciplined cross-selling strategy, this positions ServiceNow to continue delivering durable revenue growth, margin expansion, and strong free cash flow generation over the long term.

Data Moat

Artificial intelligence is no longer simply an additional feature within ServiceNow’s software portfolio. Management now views AI as the company’s next major growth platform, extending far beyond the initial success of Now Assist. Now Assist is ServiceNow’s native generative AI platform that embeds AI directly into workflows across the Now Platform, enhancing productivity across IT, customer service, HR, and other business functions.

The clearest evidence of accelerating AI adoption came when management raised its 2026 annual contract value (ACV) target for Now Assist from $1 billion to $1.5 billion, signaling confidence that customer adoption is progressing faster than previously expected and that enterprises are increasingly willing to pay for AI solutions that improve productivity and automate repetitive work.

Management also emphasized that AI should not be viewed as a single product opportunity. Instead, AI adoption is driving demand for complementary offerings such as Workflow Data Fabric, AI Control Tower, and EmployeeWorks, which help customers connect enterprise data, govern AI, automate workflows, and deploy AI across business operations. ServiceNow increasingly expects to generate revenue as customers deploy AI agents, automate additional workflows, govern enterprise data, and expand platform usage, extending monetization beyond AI assistants. This represents an important shift in the company’s growth strategy, with AI evolving into a broad ecosystem that supports subscription growth, cross-selling opportunities, and durable recurring revenue.

This strategy builds on ServiceNow’s long-standing position in workflow automation across IT, employee services, and customer support. Management increasingly describes the company as the platform that coordinates how AI operates across the enterprise. CEO Bill McDermott has characterized this vision as an “AI Control Tower” built around five strategic growth pillars: core IT, AI security, AI-native CRM, EmployeeWorks, and Workflow Data Fabric. Products such as AI Control Tower and Action Fabric enable AI agents to access enterprise data, execute workflows, interact with enterprise systems, and follow existing approval processes, security policies, and business rules. Because enterprise AI requires trusted access to business data, workflow execution, governance, and compliance, ServiceNow’s existing platform positions it to coordinate AI across large organizations while increasing its strategic importance within customer environments.

Management argues that the company’s long-term competitive advantage lies not in owning the best foundation model but in providing the best enterprise context. Through its Context Engine, ServiceNow continuously learns from more than 100 billion workflows executed annually, combining workflow history, approval chains, configuration data, asset relationships, user identities, and business policies into a proprietary knowledge base. As customers digitize more business processes, the platform develops a deeper understanding of how organizations operate, enabling more accurate AI recommendations over time. This accumulated operational knowledge would be difficult for competitors to replicate and represents one of ServiceNow’s strongest competitive advantages.

Reinforcing Loop

Management also maintains that AI strengthens the company’s core workflow business. Every AI-powered workflow relies on ServiceNow’s automation platform, while broader AI adoption encourages customers to deploy complementary offerings such as Workflow Data Fabric, analytics, governance, and the Context Engine. As customers automate more business processes, the platform executes more workflows, captures more operational context, improves AI performance, and creates additional opportunities for automation and cross-selling. This reinforcing cycle has the potential to increase customer spending, strengthen retention, and expand adoption across the existing customer base.

Recent acquisitions, including Moveworks, Veza, Armis, Pyramid Analytics, and data.world, support this strategy by adding capabilities in enterprise metadata management, analytics, identity governance, operational asset intelligence, AI-powered employee experiences, and cybersecurity. Management has emphasized that these businesses contribute relatively little revenue today and were acquired primarily for their technology, engineering talent, and strategic capabilities. Together, they strengthen ServiceNow’s unified AI platform and create additional opportunities to expand customer adoption over time.

Governance has become another important differentiator as enterprises deploy AI more broadly. Management argues that many AI initiatives fail because organizations struggle to control how autonomous AI systems access sensitive information, comply with business policies, and execute actions safely. To address these challenges, ServiceNow has introduced AI Control Tower, Action Fabric, approval workflows, and policy enforcement capabilities that monitor, govern, and audit AI activity across the platform, while acquisitions such as Veza and Armis further strengthen identity management, access controls, and enterprise security. These capabilities position the company to benefit as governance becomes an increasingly important enterprise requirement.

Workflow Data Fabric has also emerged as one of ServiceNow’s fastest-growing strategic initiatives. Management identifies it as one of the company’s five major growth pillars and views Data & Analytics as a multibillion-dollar opportunity. Workflow Data Fabric now serves more than 4,000 customers and processes over 3 billion monthly data transactions, while RaptorDB Pro reached $100 million in annual contract value within only five quarters. By allowing AI systems to securely access enterprise data where it already resides and immediately use that information to automate business processes, Workflow Data Fabric expands ServiceNow’s opportunity beyond traditional workflow automation into AI-ready enterprise data.

ServiceNow is positioning itself as the enterprise platform that connects AI model providers and cloud platforms instead of competing directly with them. The company supports leading AI providers such as OpenAI, Anthropic, and Google, as well as enterprise platforms including Snowflake, Databricks, SAP, and Workday, allowing customers to integrate AI into existing technology environments instead of replacing them. This open architecture lowers adoption barriers, reduces dependence on any single AI provider, and broadens ServiceNow’s addressable market as enterprise AI adoption continues to expand.

Scaling Profitably

ServiceNow has delivered consistently strong growth over the past five years, with revenue and earnings per share increasing at a CAGR of 23.6% and 49%, respectively. Growth has been supported by its land-and-expand strategy within existing customers, a high-visibility subscription revenue model, and increasing adoption of AI-powered offerings such as Now Assist. At the same time, operating leverage, share repurchases, and strategic acquisitions have enhanced profitability, reduced share count, and expanded cross-selling opportunities, allowing earnings to grow faster than revenue.

The company continued that momentum in the first quarter of fiscal 2026. Subscription revenue increased 19% year-over-year in constant currency to $3.67 billion, exceeding the high end of management’s guidance despite an approximately 75-basis-point headwind from delayed on-premises deals in the Middle East related to the regional conflict. Total revenue reached $3.77 billion, surpassing consensus estimates, while adjusted EPS of $0.97 was in line with expectations. Demand for AI solutions remained strong, with the number of Now Assist customers generating more than $1 million in annual contract value (ACV) increasing by over 130% year-over-year.

Underlying demand also remained healthy. Current remaining performance obligations (cRPO) grew 21%, ahead of expectations, while total remaining performance obligations (RPO) increased 23.5% year-over-year to approximately $27.7 billion, providing strong visibility into future subscription revenue. The company closed 16 transactions exceeding $5 million in net new ACV during the quarter, representing nearly 80% year-over-year growth, and finished the quarter with 630 customers generating more than $5 million in ACV, up approximately 22% from the prior year.

Profitability continued to exceed management’s expectations, with an operating margin of 32% and a free cash flow margin of 44%. Looking ahead, ServiceNow raised the midpoint of its full-year subscription revenue guidance by $205 million to $15.76 billion, implying 20.5% to 21% year-over-year growth and a free cash flow margin of 35%. Management noted that approximately 125 basis points of the higher revenue outlook reflects the contribution from the recently completed Armis acquisition. For the second quarter, the company expects subscription revenue of approximately $3.82 billion, representing 21% to 21.5% growth, along with cRPO growth of 19.5% and an operating margin of 26.5%.

Value NOW

Shares of NOW have declined by more than 40% over the past year, driven primarily by valuation compression and changing investor sentiment instead of weakening business fundamentals. Investors have become more cautious amid concerns that agentic AI could disrupt enterprise software, some delays with deals in the Middle East, margin pressures caused by acquisitions, and intensifying competition. However, the company’s business has remained resilient, with strong subscription revenue growth, accelerating AI demand, expanding margins, and raised guidance. As a result, this selloff appears to reflect an overreaction to valuation and sentiment concerns, not a meaningful weakening of the business.

Currently, ServiceNow is trading at a substantial discount to its historical averages based on non-GAAP trailing and forward P/E ratios, forward EV/Sales, EV/EBITDA, and forward price-to-cash-flow multiples. Compared to peers such as Atlassian, Salesforce, Microsoft, and CrowdStrike, ServiceNow trades in the moderate-to-high valuation range based on non-GAAP trailing and forward P/E ratios, forward EV/EBITDA, and forward price-to-cash-flow multiples. While the stock still commands a premium to slower-growing peers such as Salesforce, its valuation appears justified by its superior growth profile and AI-driven expansion opportunity. ServiceNow is expected to deliver approximately 20% forward revenue growth, well ahead of Salesforce and above Microsoft, while maintaining industry-leading gross margins of more than 76% and a free cash flow margin of nearly 37%.

Notably, its forward PEG ratio of 1.05 is significantly lower than Microsoft’s 1.42 and far below CrowdStrike’s 5.39, indicating that its earnings growth is reasonably priced. Likewise, ServiceNow trades at a forward EV/EBITDA multiple of 17.9x, only modestly above Microsoft’s 14.7x despite considerably faster growth, while its forward price-to-cash-flow multiple of 17.4x remains close to Microsoft’s 16.8x despite generating substantially stronger revenue growth. The company also continues to deliver robust multi-year growth in revenue, EBITDA, earnings, and free cash flow, underscoring the durability of its subscription-based business model. Given its accelerating AI adoption, expanding enterprise customer base, consistent execution, and strong cash generation, the current valuation underappreciates the company’s long-term earnings and free cash flow potential, creating an attractive entry point for long-term investors.

Analysts remain bullish about NOW because the company combines a high-margin, recurring revenue model with strong free cash flow generation, providing ample funding for AI innovation, research and development, strategic acquisitions, and share repurchases while maintaining financial flexibility. Its growing adoption of AI-native offerings, expanding large enterprise customer relationships, and conservatively leveraged balance sheet further support long-term growth and resilience through potential fluctuations in enterprise spending.

Consensus price targets imply roughly 26% upside from current levels, with the most bullish estimates suggesting around 112% upside. The wide range in ServiceNow’s price targets reflects differing analyst assumptions about AI-driven growth, future revenue and margin expansion, valuation multiples, and execution risks. Discounted cash flow analysis indicates that the shares are undervalued, trading at an approximate 57% discount to their intrinsic value.

ServiceNow has steadily expanded its share repurchase program as part of its disciplined capital allocation strategy. The company’s board initially authorized a $1.5 billion share repurchase program in May 2023, followed by additional authorizations of $3 billion in January 2025 and $5 billion in January 2026. The company further demonstrated confidence in its outlook by entering into a $2 billion accelerated share repurchase (ASR) agreement with a financial institution on January 30, 2026, more than double the total value of shares repurchased throughout all of 2025. ServiceNow also repurchased an additional $225 million of stock through open-market transactions during the first quarter of 2026. As of March 31, 2026, approximately $4.2 billion remained available under the share repurchase program, providing substantial capacity for future buybacks.

Investing Takeaway

ServiceNow’s sharp share-price decline has created a more compelling valuation for long-term investors without materially changing the company’s underlying investment case. The business continues to benefit from a highly recurring subscription model, strong customer expansion, accelerating AI adoption, and consistent free cash flow generation, while management has reinforced confidence through higher guidance and an expanding share repurchase program. Although the stock still trades at a premium to some enterprise software peers, that premium appears supported by its faster growth, superior profitability, and expanding AI opportunity. With valuation multiples now well below historical levels and discounted cash flow analysis indicating meaningful upside to intrinsic value, the recent pullback offers value-oriented investors an opportunity to gain exposure to a high-quality software company at a significantly more attractive entry point than in recent years.

Category: Smart Value