The era of AI is upon us. A Chinese robot named “Lightning” ran a half-marathon faster than any human in history. Video can now be used to create interactive 3D maps in record time. Software is now more efficient than ever thanks to AI agents that handle tasks for you. This massive push toward digitalization is exactly like ServiceNow $nowAn IT services management company, is expected to capitalize. They have taken robotic process automation to the next level by taking over one of the most common and repetitive tasks (handling support tickets) and making it less painful.
Everything seems to be on track. ServiceNow expects $30 billion in AI revenue by 2030, double the total revenue they expect in 2026, yet the stock has sold off dramatically. In fact, fears over AI disrupting traditional enterprise software recently caused the entire software sector to lose nearly $1 trillion in market value in just a few weeks. As always, we have to tune out the noise and see what’s really going on.
Revenue growth is the ground truth of whether a company is disrupting or not. ServiceNow’s consistent 20% revenue growth and 80% gross margin may have investors wondering how the stock could have underperformed the Nasdaq over the past five years.
The answer extends far beyond just revenue growth. Not all revenue is equal, and while most of ServiceNow’s revenue growth has been organic, it’s worth noting that they’ve been on an acquisition spree recently.
In 2025 alone, the company made seven acquisitions, the largest of which was Moveworks for approximately $3 billion. Moveworks is an employee services software company that helps automate company support functions, which is a natural fit for ServiceNow. However, shares have now fallen significantly following the announcement. The market hates when companies make big acquisitions, but this was of particular concern to NOW investors because Moveworks had just reached $100 million. Aannual Runited nations Rate (arrival) before being acquired. This means they don’t directly add much to ServiceNow’s revenue of more than $15 billion per year. This also means that ServiceNow paid a whopping 30x sales for Moveworks.
Instead of holding back from big purchases, ServiceNow set a record in 2026 with its largest acquisition to date: $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 large acquisitions within a short period of time have forced investors to question whether ServiceNow is reaching its growth potential and begin looking for growth in adjacent areas. How else do you explain an IT support automation firm buying a cybersecurity company? It doesn’t seem like this would create much coordination. Management claims this will help turn the company into an “AI control tower” where customers can deploy their own AI agents as well as prevent behavior from malicious AI bots. We’d like to see all this “AI” translated into real revenue.
ServiceNow “does” AI
In a world where Anthropic can shave billions off market value by issuing a press release, we need to make sure that ServiceNow is actually using AI to its advantage, not being displaced by it. In our last article on ServiceNow, we pointed to the development of their Now Assist platform as a proxy for AI monetization. The company has repackaged Now Assist as “Otto” after combining it with Moveworks’ Conversational AI solutions. By Q1-2026, the solution was growing at 70% year-on-year. That’s not bad when you consider that ARR had already reached $600 million by the end of 2025.
The Otto platform is marketed as an “agent for agents” with the goal of autonomously completing tasks like resolving 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 its latest earnings call:
- Main IT Business Which is said to increase with the expansion of the code. According to management, as the volume of code will increase 20x by 2030, the volume of support tickets will also increase in the same proportion.
- AI security In which they are moving ahead with their Armis acquisition.
- AI Native CRM Which sounds a bit like what Salesforce is dominating, but ServiceNow is taking a different approach. They are hoping to help businesses combine “fragmented” operations and transform month-long processes into day-long processes.
- AI Native”front door” which combines Moveworks and ServiceNow’s conversational AI tools to create an agent that can search ServiceNow’s “integrated portal” to gather information and answer questions. Management claims they have closed “several deals” worth upwards of $1 million because of it.
- workflow data fabric Which helps companies organize and clean data from different sources.
Clearly management sees AI as a tailwind, and it’s good that they have summarized the key opportunities for investors. However, as long as the cloud continues to rear its ugly head with its own AI tools, investors will remain concerned. The company’s sunglasses-wearing CEO addressed the topic on its recent earnings call, saying:
“With the (cloud) mythos as an example, security activity is skyrocketing. Activities run through this platform, alerts, tickets, actions, resolutions, they’re all revenue drivers for ServiceNow. Enterprises can’t afford to experiment in today’s risk environment. They need ServiceNow as a strategic bulwark for the enterprise.”
ServiceNow’s “cheap” valuation
Last year, we concluded that ServiceNow’s valuation was “rich,” but within striking distance. At that time the company’s simple valuation ratio was about 17, a strong premium to our tech stock catalog average. Today it’s down to just 6, which is below that average, and well below the company’s own previous four-quarter average of about 14.
Does this steep decline in valuations 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 rates (renewal rate) 97% indicates that their product is sticky. (Compare this to the 90% “healthy” benchmark.) Their gross margin remains strong at 81%, and their operating margin 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 as it was a year ago at a better price. But are there better ways to play out the “agentification” thesis?
Is there a threat to Salesforce ServiceNow?
When we first wrote about ServiceNow two years ago, we described it as being like Salesforce $CRMBut for internal operations rather than external. A lot has changed in those two years, and the two companies are starting to look more and more alike.
Salesforce has a tool that directly competes with ServiceNow’s main offering. It’s called “Service Cloud”, and while it’s been around since 2009, it’s just started to integrate AI making it look a lot like what ServiceNow is doing. Service Cloud aims to unify support interactions across all channels into a single console using AI agents. Additionally, Salesforce’s “AgentForce” helps organizations automate tasks that ‘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 one is better than the other.
Historically, larger enterprises have tended to use both Salesforce and ServiceNow together, making both of them more competitive than competitors. As they race to do anything and everything with AI, their rivalry is likely to grow. Forrester recently reported The fact that these companies are beginning to encroach on each other highlights the fact that they still have different specialties, with Salesforce focusing on external relationships and ServiceNow prioritizing internal operations. The research firm drew a clear conclusion – the winner will be the firm that can effectively use enterprise data for AI agents. With access to “decades of knowledge” and reams of proprietary operational workflow data, ServiceNow’s prospects look good.
conclusion
While the market is confident that ServiceNow will be disrupted by AI, the numbers tell a different story. Without a notable slowdown in growth, declining margins, or worsening gross retention rates, we have no concrete evidence that ServiceNow is facing any pressure from the cloud or other “vibe coding” solutions. Whatever the case, the company is using AI to its advantage. Today’s low valuations may provide an opportunity to apply some Buffett wisdom and be greedy when others are fearful. Nanalyze Premium If we take any action regarding ServiceNow, subscribers will be the first to know. In the meantime, we’ll keep an eye out for any signs of cracking when we check in next year.
