What Are ServiceNow Stock Bears Missing?
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One business stands out at ServiceNow (NOW): the AI products it sells to large enterprises, and bulls appear to be betting on exactly that. Bears have price on their side, with the stock down 40.2% over the past twelve months while the S&P 500 returned 13.7%. To prove them wrong, ServiceNow has to sustain its rapid AI sales growth and improve its reported profit margin, which has fallen over the past year. So how fast are ServiceNow’s AI sales growing?
ServiceNow Keeps Raising Its AI Sales Target
They are growing fast, according to management’s own figures. On the October 28, 2026 call, management said the value of new yearly contracts for ServiceNow’s AI products grew 65% in fiscal Q3 2026 from a year earlier. The company began the year with a $1 billion AI target for year-end and raised it to $1.5 billion in May. Management then raised the target again on the October call, pushing it to more than $1.7 billion.
Individual products are also growing quickly. EmployeeWorks, which handles employees’ workplace service requests, reached $100 million in yearly contract value in less than three quarters. On November 4, 2026, ServiceNow said the NBA will deploy EmployeeWorks for its own employees.
Management expects AI to become a large part of the business. During its Financial Analyst Day in May, the company set a goal for AI to make up 30% of its yearly contract value by 2030, and management said on the October call that ServiceNow was on that path. On AI sales, the bulls have the evidence so far.
Is ServiceNow Turning Its AI Growth Into Profit?
Not on its reported figures yet, and that is where the bears have a point. ServiceNow’s operating margin was 9.4% in fiscal Q3 2026, down from 16.8% a year earlier. Its gross margin fell to 70.5% from 77.3% over the same year. On management’s own measure, its non-GAAP operating margin was 32.5% in fiscal Q3 2026, which differs from the reported margins above. That beat the company’s own guidance by 150 basis points.
ServiceNow looks stronger on cash. Free cash flow, the cash left after capital spending, was $748 million in fiscal Q3 2026, up from $569 million a year earlier. So ServiceNow’s free cash flow has grown along with its sales, while its reported margins have fallen even as its AI sales took off.
What Would Show ServiceNow’s AI Sales Falling Short?
ServiceNow’s AI sales would be falling short if the company’s overall growth never picked up. It has not picked up yet, so that test is still open. Revenue grew 20.5% from a year earlier in fiscal Q3 2026, against 21.8% in fiscal Q3 2025. Management’s AI growth figure is new contract value, not reported revenue, so it covers what customers have signed, not what has reached the income statement.
Management also expects one measure of future revenue to slow. It guided growth in current remaining performance obligations, the contracted revenue due over the next twelve months, to 18.5% in fiscal Q4 2026, from 21% in Q3, both in constant currency. Management said strong early renewals pulled some of that growth into Q3. It added that more on-premises deals and some contract backlog will count toward revenue but not toward that measure. It still expects subscription revenue growth of 21.5% in fiscal Q4 2026, in constant currency. That would be faster than the 20.5% subscription growth of fiscal Q3 2026, also in constant currency.
If AI sales slow, ServiceNow is left with revenue growth that has eased and a reported margin that has fallen, which is the picture bears already see. For now, AI sales are growing fast according to management’s figures, while the reported margins have yet to rise. ServiceNow’s reported operating margin and whether its AI business reached management’s year-end target are the numbers to watch when the company reports fiscal Q4 2026, expected in January 2027.
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