ServiceNow FY2027: The Time Is NOW

Executive Summary

We are initiating coverage on ServiceNow, Inc. (NOW) with a BUY rating and a target price of USD144.70, representing 38% upside from the current price of USD104.85.

ServiceNow is a leading enterprise platform for workflow automation and AI-enabled business orchestration. Originally known for IT Service Management (ITSM), it has evolved to cover IT, customer service, HR, procurement, workplace services, security, risk, data and low-code application development. Its platform is a system of action, connecting people, data, systems and AI agents to convert requests and AI outputs into governed business actions.

The key market concern is that AI agents could reduce demand for human seats, while recent acquisitions may pressure margins. We believe this concern overlooks ServiceNow's stronger strategic position. The same shift also increases workflow volume, opens a non-seat monetisation layer, and deepens enterprise need for governance, identity, security and auditability. These are exactly why ServiceNow is investing in Now Assist, hybrid pricing, AI Control Tower and acquisitions such as Moveworks, Veza and Armis.

FY2025 results demonstrate the model's durability with revenue of USD 13.3Bn (+20.9% y/y), 97% subscription mix, a 98% renewal rate and USD 4.64Bn free cash flow (35% margin). In Q1 2026, subscription revenue grew 22% y/y to USD 3.67Bn. These figures suggest resilient enterprise demand despite macro and software-budget headwinds.

Table 1: ServiceNow Financial Summary (FY2022–FY2025) (FY2022–FY2025)

	FY2022	FY2023	FY2024	FY2025
Revenue (USD Mn)	7,245	8,971	10,984	13,278
Revenue Growth	22.9% y/y	23.8% y/y	22.4% y/y	20.9% y/y
Gross Margin	78.3%	78.6%	79.2%	77.5%
Operating Margin	4.9%	8.5%	12.4%	13.7%
Adj. EPS (USD)	0.34 (1.70 pre-split)	1.71 (8.55 pre-split)	1.41 (7.03 pre-split)	1.87
Earnings Growth	40.5%	402.9%	-17.5%	32.6%
Free Cash Flow (USD Mn)	2,180	2,697	3,459	4,635
FCF Margin	30.1%	30.1%	31.5%	34.9%
Source: ServiceNow, iFAST compilations. Data as of 14 July 2026.

Figure 1: ServiceNow stock performance (rebased to 100%)

Our BUY call rests on three pillars. First, a sticky workflow ecosystem creates high switching costs as customers expand from ITSM across the enterprise. Second, its hybrid subscription-plus-consumption model lets it monetise AI-executed work. Third, its AI Control Tower strategy and acquisitions strengthen its ability to govern, secure and execute AI-driven workflows in production. This combination supports the valuation and positions ServiceNow as a clear enterprise-software beneficiary of the AI workflow era.

Business Overview

ServiceNow provides a cloud-based platform, ServiceNow AI Platform that helps organisations digitalise, automate and orchestrate workflows across departments. It began in IT Service Management which manages incidents, service requests, change and operations. This foundation became the entry point for expansion across HR, customer service, procurement, legal, finance, workplace services, security and low-code development.

ServiceNow's core value is moving work from request to resolution, not just storing information. When an employee submits an IT request reporting that a laptop cannot be connected, ServiceNow can create and classify the ticket, retrieve relevant knowledge, suggest a resolution through Now Assist (AI helper), route the case to the right team and close it with a full audit trail. In advanced cases, AI agents can check device status, reset access, escalate incidents or trigger a cybersecurity workflow if the issue looks suspicious. This is what distinguishes a system of action from a system of record.

ServiceNow also sits across fragmented technology stacks. Large enterprises run multiple systems such as Salesforce, SAP, Oracle, Snowflake and Databricks, alongside different model providers such as OpenAI, Anthropic and Google. ServiceNow acts as the workflow layer connecting them, allowing data and AI outputs to flow across applications while governance, permissions and audit controls are maintained. This model-agnostic approach lets enterprises adopt different models and data sources without locking into one ecosystem.

Figure 2: ServiceNow product evolution — from ITSM to enterprise AI workflow platform

Source: ServiceNow Investor Presentations. iFAST compilation.

ServiceNow’s product portfolio is grouped into four major workflow areas: Technology Workflows, CRM and Industry Workflows, Core Business Workflows, and Creator and Other Workflows. These workflows serve different departments but share one platform architecture, letting customers start with ITSM and expand into customer service, HR, procurement, security, data and AI-enabled workflows without rebuilding the technology stack.

Table 2: ServiceNow Workflow Segments and Customer Use Cases

Workflow Area	What It Does	Main Users	Strategic Role
Technology Workflows	Manages IT services, operations, assets, security events, risk and technology projects	CIO, CTO, CISO, IT operations teams	Core foundation and original entry point into large enterprises
CRM and Industry Workflows	Connects customer requests, field service, sales orders, CPQ and industry-specific processes	Customer service, sales operations, field service, industry teams	Expands ServiceNow from internal IT workflows into customer-facing workflows
Core Business Workflows	Automates internal service processes across HR, legal, procurement, finance and workplace services	HR, procurement, legal, finance, facilities teams	Extends the platform into enterprise service management beyond IT
Creator and Other Workflows	Enables low-code applications, data integration, RaptorDB, Workflow Data Fabric and platform security	Developers, data teams, platform owners, automation teams	Supports custom workflow creation and AI-ready data architecture

Source: ServiceNow Investor Presentations. iFAST compilation.

ServiceNow’s revenue is highly subscription-led. Professional services and other revenue contributed only USD 395Mn in FY2025, around 3% of total revenue. This low services mix is positive as ServiceNow does not depend on labour-intensive consulting, with partners and customers' internal teams handling implementation.

Figure 3: ServiceNow revenue mix by type (FY2025)

Industry Overview

ServiceNow sits within enterprise software and SaaS, but more precisely in workflow automation and AI-enabled business orchestration. Its addressable market has expanded from roughly USD 60Bn in 2019 to over USD 200Bn by 2026 as workflow automation extends beyond IT into HR, customer service, procurement, legal, finance, security and compliance.

The SaaS industry faces the “SaaSpocalypse” debate where investors worry AI agents may reduce demand for seat-based software by automating repetitive tasks. This has made the market more selective. Software companies must now prove that AI is not a disruption risk, but a monetisation opportunity.

ServiceNow is better positioned than many peers because it is not merely a system of record or a single-function application. Generative AI produces answers, but enterprises need a governed execution layer to turn them into actions. This includes routing approvals, checking permissions, updating systems of record, triggering workflows and maintaining audit trails. ServiceNow sits between AI models, enterprise data and business systems, helping organisations execute AI-driven work in a controlled way.

The SaaSpocalypse has compressed valuations across the sector. ServiceNow's forward P/E of 22.6x (as of 14 July 2026) still trades at a premium to peers such as Salesforce (11.4x), Microsoft (19.6x) and Atlassian (14.2x), but sits well below its own 5-year average of 53.8x. We believe this discount to its own history is the more relevant signal. ServiceNow's positioning is more horizontal than peers, Salesforce is strongest in CRM, Microsoft in productivity and cloud distribution, and Atlassian in developer and IT workflows. These platforms are powerful but anchored in specific domains. ServiceNow connects workflows across departments, making it more relevant as enterprises move from AI pilots to production, which justifies its premium to peers while the discount to its own history suggests the sell-off has been overdone.

Table 3: ServiceNow vs. key SaaS competitors

Company	Core Strength	AI Strategy	Forward P/E
ServiceNow	Enterprise workflow orchestration across IT, HR, customer service, security, and low-code	Now Assist	22.63
Salesforce	CRM and customer data platform	Agentforce	11.35
Microsoft	Bundled enterprise software, Azure, Teams, Copilot	Copilot	19.61
Atlassian	Developer and IT service workflows	Atlassian Intelligence	14.22
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 14 July 2026.

Figure 4: ServiceNow’s Gartner Magic Quadrant positioning

Investment Thesis

1. Sticky workflow ecosystem creates high switching costs and supports long-term revenue visibility.

ServiceNow’s core strength is its sticky enterprise workflow ecosystem, whose value increases as customers adopt more workflows across IT, HR, customer service, procurement, security, data and AI-enabled operations. Once multiple departments rely on ServiceNow to route approvals, resolve requests, trigger integrations and maintain audit trails, replacing it becomes operationally complex and risky.

This creates a compounding moat. A customer using only ITSM may compare it against other ticketing tools. But a customer using ITSM, HR, Customer Service, Security Operations, App Engine, Workflow Data Fabric and Now Assist is no longer replacing one application but an enterprise workflow stack. This lowers churn and lets ServiceNow expand annual contract value within the same base.

The data supports the thesis with ServiceNow maintains a 98% renewal rate, and enterprise adoption keeps deepening. In Q1 2026, 17 of its top 20 deals included seven or more products. Customers with more than USD 5Mn in annual contract value continue to grow, showing large customers are not only renewing but expanding wallet share.

Figure 5: Customers with USD 5Mn+ ACV and average ACV trend

ServiceNow’s growth is also increasingly diversified beyond its ITSM base. In Q1 2026, Technology Workflows remained the largest contributor at 49% of TTM net new ACV, while non-Technology workflows collectively accounted for 51%. CRM is approaching a USD 2Bn ACV run-rate, Security & Risk above USD 1.5Bn, and RaptorDB Pro past USD 100Mn ACV within five quarters. This shows ServiceNow is capturing adjacent opportunities in CRM, Core Business, Creator, data, security and AI workflows, not just mature ITSM.

Figure 6: ServiceNow TTM net new ACV contribution by workflow

ServiceNow’s contracted backlog further supports the durability of this growth. In Q1 2026, cRPO reached USD 12.64Bn, up around 22% y/y, while total RPO stood at USD 27.7Bn. This suggests customers keep committing through multi-year contracts despite AI-disruption concerns and software-budget scrutiny. While traditional RPO may not fully capture future usage-based AI revenue, it provides a strong revenue floor for the existing subscription base.

Figure 7: RPO and cRPO Trend

2. Hybrid pricing shifts monetisation from human seats to AI-executed work.

ServiceNow is shifting from seat-based SaaS pricing towards a hybrid subscription-and-consumption model. Seat-tied models create investor concern that AI agents may reduce the need for user-based subscriptions. ServiceNow is directly addressing this risk by monetising both human users and AI-executed work.

Instead of open-ended token billing, ServiceNow embedded hybrid pricing across tiers, giving customers broader AI access while monetising incremental usage through entitlements, service credits and Assist Packs. Pricing remains primarily subscription-based, charged per fulfiller user (employees who actively manage or resolve workflows). Pricing varies by product and tier, but industry benchmarks suggest ITSM pricing can range from roughly USD 90 to USD 200+ per user per month, with higher tiers such as Pro Plus or Enterprise Plus costing more for added analytics, automation and generative AI.

This shift is already visible. While customers still subscribe to core workflow products, AI adds a monetisation layer on top of the base subscription. Around 50% of net new ACV now comes from non-seat pricing of AI tiers, service credits and usage-based components. ServiceNow can thus earn more per customer as AI usage rises, offsetting the risk that automation reduces demand for human seats.

Figure 8: ServiceNow pricing tiers

Source: DSS.bg, Reco, iFAST compilations.

* For reference only. Indicative pricing is based on third-party estimates. ServiceNow does not publish official list pricing.

Now Assist shows this model is becoming commercial, not theoretical. Now Assist ACV exceeded USD 750Mn in Q1 2026 (up from USD 600Mn+ in Q4 2025), with an FY2026 target of USD 1.5Bn. AI product tiers such as Foundation, Advanced and Prime also provide a clearer upsell path, from basic workflow automation into AI-assisted and agentic execution.

Table 4: Now Assist ACV Progression and Targets and targets

3. AI Control Tower and acquisitions build the governance layer for enterprise AI.

ServiceNow's AI Control Tower strategy addresses a key barrier of AI adoption, “trust”. Enterprises need to control what AI agents can do, which systems they access, what data they use, how actions are approved and how every step is audited. This governance gap is what keeps most corporate AI stuck in experimentation, and it is precisely the layer ServiceNow is building through recent acquisitions and product expansion.

Three recent acquisitions directly address the credibility issue. Moveworks (USD 2.4Bn) adds a conversational AI front door that routes natural-language requests into ServiceNow workflows. Veza (USD 1.25Bn) adds identity and access governance, controlling what humans, machines and AI agents can do. Armis (USD 7.75Bn) adds asset visibility and cyber exposure management across IT, OT, IoT and edge devices. Together they answer a critical question: when AI agents act, who requested it, what systems are affected, what permissions apply and how the action is governed.

These acquisitions also materially enlarge the opportunity set. Management now frames the total addressable market at roughly USD 600Bn, up from around USD 90Bn, with Armis and Veza alone expected to more than triple the addressable market for security and risk. ServiceNow’s security and risk business crossed USD 1Bn in ACV in 2025 organically, before either acquisition closed, demonstrating demand for the segment. Current capture is still a low single-digit fraction of the stated TAM, leaving substantial runway.

There is early evidence the governance layer is gaining traction. Inspira Enterprise is running more than 50 AI agents through AI Control Tower, reporting a 40% lift in adoption and 35% productivity improvement, while HDFC Bank has described it as a common governance layer across IT and risk. These are encouraging early signals, though the expanded AI Control Tower only reaches general availability in August 2026, making the next few quarters the real test of commercial scale.

The acquisitions do raise valid margin concerns. The 2025 wave totals roughly USD 11.4Bn, materially larger than ServiceNow's historical tuck-ins. Armis alone is expected to create near-term FY2026 headwinds of around 25bps to subscription gross margin, 75bps to operating margin and 200bps to free cash flow margin. We view these as a strategic investment in the control points required for enterprise AI deployment and note that ServiceNow's FY2025 free cash flow of USD 4.64Bn (~35% margin) and AI-driven internal savings rising from USD 100Mn to USD 300Mn in FY2026 provide capacity to absorb the integration costs.

Table 5: Recent acquisitions — cost and strategic role

Acquisition	Approx. Consideration	Capability Added	Strategic Purpose
Moveworks	USD 2.4Bn	Conversational AI front door and enterprise search	Captures employee requests and routes them into ServiceNow workflows
Veza	USD 1.25Bn	Identity governance and access control	Controls what humans, machines and AI agents can access or execute
Armis	USD 7.75Bn	Asset visibility and cyber exposure management	Identifies enterprise assets and security exposure before workflow remediation
Source: ServiceNow, Bloomberg Finance L.P., iFAST compilations. Data as of 30 June 2026.

Valuation

ServiceNow does not screen as an optically cheap SaaS stock, but its premium is justified by growth quality, revenue visibility, cash generation and emerging AI monetisation.

Management's FY2026 guidance supports this with subscription revenue of USD 15.74 - 15.78Bn (20.5 - 21.0% growth) and free cash flow margin of 35.0%. Despite AI and acquisition spend, non-GAAP operating margin is guided up 100bps to 31.5% with subscription gross margin above 80%. This shows ServiceNow can keep investing without hurting software economics.

Table 6: Management’s FY2026 guidance

Metric	FY2025 result	FY2026 guidance	Growth y/y
Subscription revenue	USD 12.88Bn	USD 15.74 - 15.78Bn	20.5 - 21.0%
Subscription gross margin	82.5%	81.50%	-100 bps
Operating margin (non-GAAP)	30.5%	31.50%	+100 bps
Free cash flow margin	34.9%	35.0%	+10 bps
Now Assist ACV	USD 600Mn+	USD 1.5Bn	250%
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 14 July 2026.

FY2025 revenue growth of 20.9% and a 34.9% FCF margin sums to 56 on the Rule of 40, placing ServiceNow among the highest-quality software names. Revenue visibility is equally strong, with year-end cRPO of USD 12.85Bn (+25% y/y) and RPO of USD 28.2Bn providing a multi-year revenue floor.

ServiceNow deserves a premium multiple due to its sticky workflow base, 98% renewal rate, strong FCF margin, durable 20%+ subscription growth and early AI monetisation through Now Assist, whose ACV already exceeds USD 750Mn against an FY2026 target of USD 1.5Bn. With that, we value ServiceNow on FY2028E EPS of USD 6.08 at a fair P/E of 24x, implying a target price of USD144.70 and 38% upside from USD 104.85.

Figure 9: ServiceNow fair value derivation

Table 7: ServiceNow valuation summary

	FY2025	FY2026E	FY2027E	FY2028E
Revenue	13,278	16,196	19,220	22,850
Revenue Growth (%)		22.0%	18.7%	18.9%
P/E (x)	44.01	25.40	20.98	17.39
Earnings (EPS, $)	3.48	4.17	5.04	6.08
EPS growth (%)		19.8%	20.9%	20.6%
Fair P/E (x)				24
Current price (USD)				104.85
Target price (USD)				144.70
Upside potential (%)				38.0%
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 14 July 2026.

Investment Risks

1. AI agents reduce the need for human seats.

The key structural risk is that AI automation lowers demand for fulfiller seats, especially across ServiceNow's ITSM and service base, where incident resolution, routing, knowledge retrieval and basic requests are increasingly automatable. If ServiceNow cannot offset fewer seats through AI tiers, service credits, Assist Packs and agentic execution, growth could decelerate. The shift to non-seat pricing mitigates this, but seat-based revenue is still the majority today and the transition remains to be proven at scale.

2. AI could dilute gross margin.

Higher AI inference costs could pressure subscription gross margins if customer adoption accelerates faster than ServiceNow's ability to monetise AI usage through hybrid pricing. While management currently expects subscription gross margins above 80%, sustained increases in compute intensity remain a key execution risk.

3. Enterprise spending discipline and deal timing.

A more prolonged slowdown in enterprise software spending or weaker-than-expected cRPO growth could challenge assumptions around ServiceNow's ability to sustain 20%+ subscription growth, potentially compressing its premium valuation multiple.

Key Takeaway — “BUY”

We initiate coverage on ServiceNow with a BUY rating and a target price of USD144.70, implying 38% upside from the current price of USD104.85. The stock has been pressured by the broader “SaaSpocalypse” concern, where investors worry that AI agents will reduce demand for traditional seat-based software. We believe this concern is overstated for ServiceNow as its fundamentals remain strong and growth direction aligned with the AI era. Rather than being displaced by AI, ServiceNow is building the workflow layer that helps enterprises govern, secure and execute AI-driven actions across departments. Hence, recent sell-off creates an attractive entry point into the high-quality software compounder.

Declaration:For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.