Key insights
- ServiceNow's stock has declined significantly due to AI disruption fears, but its fundamentals suggest a strong recovery potential. The company is positioning itself as a key enabler for enterprise AI deployment, offering control and governance. Strong subscription revenue growth, a substantial backlog, and increasing demand for its AI products like Now Assist indicate robust customer commitment. The stock's current valuation at a multi-year low presents a potential buying opportunity for investors.
ServiceNow (NOW 6.08%) stock has taken a beating, down almost 42% from its previous peak. The market has rerated this workflow automation leader on fears of artificial intelligence (AI) disruption, but the numbers tell a very different story.
The company is expanding its mission from helping IT teams resolve issues faster to helping enterprises control and govern how AI agents operate. It closed 16 deals worth $5 million or more in new annual contract value. This momentum may signal a buying opportunity.
Subscription revenue grew 22% year over year last quarter. ServiceNow's backlog grew 25% to nearly $28 billion. That's a clear sign customers aren't walking away; they're committing to ServiceNow for the long term.
Wall Street is overlooking ServiceNow's role in helping companies deploy AI across operations. CEO Bill McDermott said, "Customers trust our platform because we integrate with any model, cloud, interface, data, and system they choose to deploy." Its Now Assist AI product is seeing strong demand, with the number of customers spending $1 million or more up 130% year over year.
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Now Assist is evolving into an agentic AI system that can complete end-to-end tasks for employees. But an even bigger part of ServiceNow's value proposition is the control and security it provides as these agents connect to a company's data systems. The first-quarter numbers make it clear that ServiceNow is becoming a trusted provider for safe, scaled AI deployment.
The stock's sell-off has pushed its valuation to the lowest level in years. Shares have typically traded well above 40 times forward earnings, but investors can now buy it at a forward price-to-earnings multiple of around 30 times. That's a bargain for a subscription business still growing revenue at more than 20% per year.
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Put simply, ServiceNow is positioning itself as the operating system for how businesses deploy AI in the workplace. It's been embedded with large enterprises for two decades, giving it the data and insights to keep improving its platform.
The company's strong growth as it rolls out AI across its product lineup suggests ServiceNow has already won. It may just take another quarter or two of strong results for market sentiment to turn more positive.
Management still pegs its long-term addressable market at more than $600 billion. The numbers show the company is executing, and it should capture a meaningful slice of that opportunity over time. The difference today is that investors can buy the stock at a more attractive price-to-earnings ratio.