ServiceNow: Shares Down, Megatrend Upside Big

If you are looking for disruptive companies with sticky high revenue growth that have also just sold off hard as part of this year’s economic fears, consider ServiceNow (down 27% ytd). It’s a leader in cloud-based workflow automation solutions, benefiting dramatically from the ongoing digital revolution and AI megatrends. This report reviews ServiceNow’s business, market position, growth prospects, valuation and risks, and then concludes with my strong opinion on investing

About ServiceNow

Founded in 2004 and headquartered in Santa Clara, California, ServiceNow delivers cloud-based solutions for digital workflows, primarily through its Now Platform. Specifically, the platform integrates IT service management (ITSM), customer service management (CSM), HR, and others, utilizing AI, machine learning, robotic process automation, and low-code/no-code tools.

ServiceNow serves diverse sectors, including government, financial services, healthcare, manufacturing, and technology, through direct sales and partnerships with providers like AWS, Google Cloud, and Microsoft.

And its subscription-based model ensures recurring revenue, with 2,020 customers contributing over $1 million in annual contract value (ACV) as of last quarter. Further, its recent strategic acquisitions (Logik.ai and Moveworks) bolster its AI and CRM capabilities, positioning ServiceNow as a clear leader in enterprise software.

Market Share

ServiceNow holds a dominant position in the ITSM market, recognized as a leader in Gartner’s Magic Quadrant for AI Applications in ITSM and CRM Customer Engagement. While exact market share figures are not clear, the company’s wide ecosystem and focus on workflow automation give it a competitive edge over rivals like Microsoft, Salesforce, and IBM.

Further, ServiceNow’s ability to cross-sell non-ITSM workflows, such as CSM and HR, enhances its penetration within large enterprises. ServiceNow faces less direct competition in ITSM compared to front-office software providers, thanks to its integrated platform that keeps data, automation, and resolution within its control. Its partnerships with major cloud providers further amplify its market reach.

Total Addressable Market (TAM)

ServiceNow’s TAM is projected to grow from $220 billion in 2025 to $275 billion by 2026, driven by growing demand for digital transformation and AI solutions. For perspective, the integration of generative AI (GenAI) adds an estimated $1 trillion to its TAM, as enterprises invest heavily in AI to boost productivity. IDC forecasts $0.5 trillion in global AI spending by 2027, with ServiceNow’s Now Assist and agentic AI offerings well-positioned to capture this opportunity. And the company’s diversification into CRM and HR workflows, along with its core ITSM offerings, broaden its addressable market, particularly as it competes with Salesforce and Microsoft in these big domains.

Growth and the AI Megatrend

ServiceNow has been growing rapidly, with recent quarterly subscription revenue reaching $2.87 billion, up 21% year-over-year And its Remaining Performance Obligations (RPO) grew 23% to $22.3 billion, an indication of strong demand.

The AI megatrend is a key driver of growth, with ServiceNow’s GenAI portfolio, including Now Assist, doubling net new ACV quarter-over-quarter. Further, its Xanadu update enhances AI capabilities across industries like telecom, financial services, and the public sector. And acquisitions like Moveworks ($2.8 billion) accelerate its AI agent roadmap, strengthening enterprise search and front-end AI assistants.

Further still, strategic partnerships with Nvidia and Accenture also enhance its AI innovation meaningfully. Critically impressive, ServiceNow’s 98% renewal rate and ability to upsell demonstrates its highly successul “land-and-expand” strategy.

Valuation

ServiceNow trades at 14x sales, which is still arguably expensive, even after coming down significantly from the start of the year (as the share price is down 27%). And with a forward P/E ratio of 39x, the share are simply “not cheap.” However with 19% revenue growth expected this year and next, and with healthy net margins and sticky land-and-expand business—the shares are attractive. The 36 Wall Street analysts covering the stock rate it a “strong buy” on average, and believe the shares are currently undervalued by nearly 40%. And considering the large megatrend TAM and the company’s industry leadership position, the current valuation is compelling for long-term growth investors.

Risks

ServiceNow faces a variety of risk factors investors should consider. For example:

Its premium valuation makes it sensitive to macroeconomic headwinds, such as inflation or rising interest rates, which could reduce IT budgets. However, considering the market’s signicant declines this year, and hopes of increasing tariff clarity—ServiceNow is well positioned to resume it long-term trend higher, especially now starting from a lower price.

Intense competition from Microsoft, Salesforce, and IBM in the AI and ITSM markets may pressure margins, especially as deal cycles elongate due to pricing concerns for Pro Plus offerings.

Leadership transitions, including the departure of President CJ Desai, introduce some uncertainty, although the appointment of Amit Zavery also calms/mitigates a lot of the risk. And highly successful CEO, Bill McDermott, remains in place.

Geopolitical risks, including tariffs, pose challenges. Proposed U.S. tariffs on imports, such as those suggested by President Trump, could increase costs for ServiceNow’s global operations, particularly if data center components or software development inputs are affected. However, as the market gets more clarity on these topics, ServiceNow shares may rebound higher rapidly.

Conclusion

ServiceNow shares are down big this year, yet the business continues to grow and the cloud/AI market opportunity remains large (and it is a leader in the space). If you are a low-volatility income-focused investor, you may want to stay away. But if you can handle some price volatility and you are a long-term investor—the shares are attractive. Markets continue to be volatile, but that is often the best time to buy. I am currently long shares of ServiceNow.