Key Points
The sell-off in the stock doesn't match up with the momentum in the business.
ServiceNow's revenue growth has accelerated through the first half of 2026.
Management still expects revenue to more than double by 2030.
ServiceNow (NYSE: NOW) stock has fallen 37% so far this year, as Wall Street has grown more concerned about the potential for agentic AI to disrupt traditional software businesses' pricing and put pressure on their sales. Yet ServiceNow's revenue growth has accelerated each quarter this year, making the stock's discounted valuation a compelling opportunity for investors.
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ServiceNow is benefiting from AI demand
ServiceNow has described itself as the "AI Control Tower" for the enterprise. AI agents require governance and security, which could drive significant demand for ServiceNow's offerings over the long term. The company reported a 24% year-over-year increase in revenue in the second quarter, up from 22% growth in Q1 and 20.5% in Q4 2025.
The fear on Wall Street is that productivity gains from using agentic AI will reduce the need for the customers of software-as-a-service (SaaS) companies to add seats or licensed users to their contracts, which could pressure revenues. But ServiceNow management revealed that 50% of its net new business is non-seat-based, suggesting these concerns might be overblown.
ServiceNow is transitioning its business model away from per-seat pricing and toward a consumption model under which customers pay based on how much they use the software. On that score, the company appears to be succeeding, as the number of customers with agentic AI in production grew 9x over the last nine months -- pointing to growing consumption in the coming years.
A key competitive advantage for ServiceNow is its treasure trove of data. Its platform processes over 100 billion workflows and trillions of transactions every year. This allows ServiceNow to deliver more accurate outcomes for customers than alternatives, which in turn can support its long-term growth.
Growth and return expectations
Given the strong top-line growth so far in 2026, management raised its full-year guidance. Subscription revenue is expected to land in a range between $15.755 billion and $15.77 billion, representing a roughly 21% year-over-year growth rate on a constant-currency basis. It also expects a healthy gross margin of 81% and a free cash flow margin of 35%.
Management is targeting $32 billion in revenue by 2030 -- roughly double the expected 2026 revenue. That should translate to proportional earnings and free-cash-flow growth. Yet the stock is trading at a forward price-to-earnings multiple of 23. This is a big discount to the higher multiples it has received historically due to the predictable nature of its subscription-based business model.
Assuming the stock continues to trade at the same multiple it carries now, it could at least double in value in five years. Analysts expect earnings to grow 24% annually in the coming years, which could translate into market-beating returns.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ServiceNow. The Motley Fool has a disclosure policy.