What Makes ServiceNow Stock A Buy Today?
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ServiceNow (NOW) stock has lost 41.5% over the past year, while the S&P 500 returned 12.2%. Its worst day was a 26.9% drop following the October 28 earnings call, when management raised its AI target again. That quarter’s earnings missed analyst estimates. A buyer today is betting that ServiceNow’s AI products become a large business and that its reported profit margin, lower than a year ago, recovers. So how fast is ServiceNow’s AI business actually growing?
ServiceNow’s AI Business Is Growing Fast
Quickly, so far. Management said on the call that new annual contract value from AI products grew 65% from a year earlier in fiscal Q3 2026. They also raised the year-end target for the AI business to $1.7 billion plus, from the $1.5 billion it set in May.
One product shows that pace. EmployeeWorks, which handles employees’ workplace requests, reached $100 million in annual contract value in less than three quarters, and on November 4 the company said the NBA will deploy ServiceNow EmployeeWorks for its own staff.
That speed does not yet show up in ServiceNow’s total sales. Revenue rose 20.5% from a year earlier in fiscal Q3 2026, slower than the 24.0% it posted in fiscal Q2 2026. For now, AI is a fast-growing part of a company whose overall growth slowed in fiscal Q3 2026.
Has ServiceNow’s Reported Profit Kept Pace With Sales?
Not on the figures ServiceNow reports in its filings. The operating margin was 9.4% in fiscal Q3 2026, down from 16.8% in fiscal Q3 2025, even as revenue grew. Gross margin fell to 70.5% from 77.3% over the same year.
Management measures profit differently. On its own adjusted basis, the operating margin was 32.5% in the quarter, coming in 150 basis points above its guidance.
The business also brings in more cash than it did a year ago. Free cash flow was $4.75 billion over the twelve months to September 2026, up from $3.91 billion a year earlier. So the weaker margin shows up in reported profit, rather than in the cash the business generates.
What ServiceNow Buyers Are Paying For
The stock trades at 6.8 times sales, compared with 3.2 times for the S&P 500. That gap may be the price of growth: ServiceNow’s revenue grew an average of 22.1% over the last three twelve-month periods, compared with 6.5% for the index. A buyer paying that premium is counting on that growth holding up.
Management expects one forward measure to slow. Contracted sales due over the next twelve months grew 21% in constant currency in fiscal Q3 2026, and management expects 18.5% growth in fiscal Q4. They said early renewals pulled some deals from the fourth quarter into the third, and that more on-premise deals in the fourth quarter count toward revenue but not toward that measure.
If the slowdown proves to be more than timing, a buyer pays a premium for growth that is fading while reported profit is still below last year’s. ServiceNow is expected to report fiscal Q4 2026 results in January 2027, and its reported operating margin is the number to watch.
Not Sure ServiceNow Is Worth It At This Price?
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