The Real Engine Behind ServiceNow Stock Is Its Contract Backlog
With the stock beaten down by fears of AI disruption, one number reveals a surprising foundation of long-term customer commitment that the market seems to be overlooking.
When a stock is down 46% over the last year, it is easy to see why investors are cautious. For ServiceNow (NOW), the narrative is filled with anxiety about new AI competition, margin pressure from acquisitions, and the risk of deal delays. The stock price, sitting at about 52% of its 52-week high, suggests the market has priced in a world of trouble.
But beneath the noise of daily market sentiment, there is one number that provides a different perspective. It is not an AI metric or a quarterly earnings beat. It is the company’s Remaining Performance Obligations, or RPO. This is the total value of all contracted future revenue, and it currently stands as a multi-year backlog.
The Significance of a $28 Billion Backlog
In its most recent quarter, management reported a nearly $28 billion RPO business that is growing at 24% year-over-year. This is not a forecast; it is money that is already contractually committed by customers for future services. To put that in perspective, this backlog is roughly double the company’s entire revenue over the last twelve months, which was $14.0 billion.
This is the financial evidence of long-term adoption. While skeptics worry that customers will hesitate on large software deals in the age of AI, this growing backlog shows the opposite is happening. Enterprises are signing large, multi-year deals that lock them into the ServiceNow platform. These are not small, experimental purchases. The company’s top deals show commitment, with 17 of its top 20 deals in the last quarter including seven or more products.
Addressing AI Concerns
This backlog addresses the very risk skeptics point to. The fear is that new AI tools will disrupt ServiceNow’s business or that customers will divert budgets. But a $28 billion backlog provides a buffer and visibility. It creates a predictable, recurring revenue stream that gives the company stability and time to fully integrate its own AI offerings and prove their value.
This dynamic, where a market leader’s stock falls despite underlying business strength, is not unique to ServiceNow. For another perspective on a similar situation, it is worth considering if Salesforce’s business is truly faltering.
The market is currently focused on the threat. The RPO, however, is a measure of customer trust and dependence. It suggests that for the world’s largest companies, ServiceNow is not a discretionary tool to be swapped out for a new AI feature. It is a foundational platform they are building on for years to come. While the stock trades at a price-to-sales multiple of 7.7, right at its 10-year low, the backlog suggests the business itself is on firmer ground.
For investors looking past the current gloom, the key is to watch whether this backlog growth continues. As long as RPO keeps expanding year-over-year, it is an indicator that the company’s long-term health is stronger than its stock price implies.
And if it is exposure to software as a whole you want rather than this one name, a software ETF like IGV covers that single sector.
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