Freedom Broker experts maintained a “Buy” recommendation on shares of ServiceNow, Inc. (NOW) and a $120 price target, implying upside of about 21.6% from the current price of $98.7. In their view, strong Q2 results confirmed resilient demand for the company’s AI, cybersecurity, and business-process automation solutions; however, pressure on gross margin and a more conservative Q3 outlook limit the near-term re-rating potential for the stock.
ServiceNow — a business automation platform
ServiceNow is a developer of cloud software for automating IT services, HR management, customer service, cybersecurity, and other business processes. The company primarily focuses on large enterprise clients and develops a unified platform that makes it possible to connect various workflows, including AI tools and automation solutions.
A strong quarter confirmed AI demand
ServiceNow delivered solid results for Q2 2026 and beat its own guidance and market expectations on revenue, cRPO, operating margin, and adjusted EPS. This was driven by steady demand for AI, cybersecurity, CRM, and core technology products for business-process automation.
ServiceNow’s total revenue in Q2 rose 24% year over year to $3.99bn. Adjusted operating margin was 29.4%, about 2.8 percentage points above market expectations. Adjusted EPS reached $0.90 versus the consensus estimate of $0.86.
At the same time, gross margin came in below expectations. Total non-GAAP gross margin declined to 77.9% from 81% a year earlier and 79.2% in the consensus forecast. Analysts attribute the pressure to a higher share of deployments via hyperscalers and increased AI consumption, which support business growth but can reduce profitability.
Contract base and AI continue to grow
Current remaining performance obligations (cRPO) reached $13.2bn, up 21.5% year over year in constant currency and above management’s guidance. Total RPO was about $29bn, up 22% year over year.
The number of customers with annual contract value above $5m rose 25% to 658. The renewal rate increased to 98% from 97% the prior quarter. ServiceNow also closed 123 deals with net new AI ACV (the annual contract value metric for ServiceNow’s AI-based products and solutions) above $1m — 40% more than a year earlier.
AI is becoming an increasingly important source of growth. AI ACV exceeded $1bn for the first time, and net new AI ACV growth accelerated by more than 40% quarter over quarter. The number of customers using agentic AI in production increased ninefold over the past nine months.
According to management, more than 40 customers are already using AI Specialist to handle tier-1 IT support requests. The system can automatically close about 80–85% of such tickets and reduce handling time for individual requests from two days to roughly 20 minutes.
Q3 guidance came in below expectations
Despite a strong Q2, ServiceNow’s Q3 outlook came in slightly below market expectations. The company expects subscription revenue of $3.975–3.980bn versus the consensus estimate of $4.01bn. Non-GAAP operating margin guidance is 31% versus the market’s expected 31.5%.
One factor weighing on results will be the integration of the acquired Israeli cybersecurity company Armis. Management estimates the deal will add about 1.75 percentage points to subscription revenue growth and 1.5 pp to cRPO growth in constant currency, but at the same time reduce non-GAAP operating margin by roughly 1 pp.
For full-year 2026, ServiceNow slightly raised the lower end of its subscription revenue guidance to $15.76–15.78bn. Operating margin guidance was kept at 31.5%, and free cash flow guidance remained at a 35% margin. Subscription gross margin guidance was cut to 81% amid a further increase in the share of hyperscaler deployments.
Armis expands ServiceNow’s footprint in cybersecurity
Analysts believe the acquisition of Armis for $7.75bn remains one of the key strategic elements of the investment thesis. The deal is expected to more than triple ServiceNow’s capabilities in the security and risk management solutions market.
Together with the acquisition of Veza, the company gains the ability to unify asset, identity, vulnerability, incident, and AI-agent management on a single platform. Management believes the new assets are already boosting sales of ServiceNow’s core solutions, increasing cross-sell potential.
What price target did the experts set?
Freedom Broker maintains a $120 price target for ServiceNow shares and a “Buy” recommendation. From the current price of $98.7, this implies upside of about 21.6%. Analysts believe a significant portion of long-term risks is already reflected in the share price. Key headwinds include competition from foundation-model developers and major cloud platforms, gross margin compression due to higher AI consumption and hyperscaler deployments, as well as costs related to the integration of Armis and Veza.
At the same time, ServiceNow retains several sources of growth: scaling AI products, expanding its cybersecurity and CRM businesses, international expansion, and an increase in the number of large enterprise contracts.
Previous results
In April 2026, ServiceNow reported Q1 revenue growth of 22% year over year to $3.77bn. Subscription revenue reached $3.67bn, and the number of customers with contracts above $5m increased 24%. The company also stepped up its share buyback program, repurchasing about 20m shares in Q1 for $2bn.
Not an individual investment recommendation.