Key Highlights
- ServiceNow (NOW) has declined approximately 32% year-to-date amid widespread SaaS sector concerns related to AI disruption
- Half of the company’s new business revenue originates from non-seat-based pricing models, including AI token structures, according to CEO Bill McDermott
- Benchmark analysts launched coverage with a Buy rating and $125 price target, describing the market reaction as excessive
- CEO McDermott made a personal $3 million investment in NOW shares during February, highlighting his confidence in current valuations
- Management projects 21% GAAP subscriber revenue expansion and identifies a $600 billion total addressable market opportunity
ServiceNow shares have experienced significant pressure throughout 2026. The stock has surrendered roughly 32% of its value year-to-date, swept up in a wider SaaS sector retreat that began in late 2025.
The catalyst? Rapid advancements in AI models from firms such as Anthropic and OpenAI created investor anxiety about traditional business software demand potentially eroding.
CEO Bill McDermott challenges this interpretation. He maintains ServiceNow represents a fundamentally different type of software provider and is deliberately building the business around AI capabilities rather than treating them as a threat.
“We’re a platform company, distinct from feature or function providers,” McDermott emphasized. He highlighted the company’s AI Control Tower offering, which provides management and governance for AI agents, models, and workflows throughout enterprise environments.
McDermott disclosed a significant milestone: half of ServiceNow’s new business revenue originates from non-seat-based pricing structures. This marks the company’s first public announcement of this metric.
Evolution Beyond Traditional Licensing
The conventional software licensing approach — billing based on employee user counts — faces mounting challenges as AI capabilities reduce dependency on headcount expansion. ServiceNow has transitioned to a hybrid framework where clients purchase both seats and AI usage tokens.
The concept operates simply: as the platform handles more autonomous work, customers consume additional tokens. This structure reduces the correlation between revenue growth and workforce size.
Goldman Sachs analyst Gabriela Borges maintains a 12-month price objective of $216 for NOW. She anticipates upward revisions to organic growth projections throughout the year as customers exhaust bundled AI token allocations after demonstrating measurable value.
“These initial packages will be consumed, prompting customers to return to ServiceNow to say, ‘We’ve validated the value of this specific product. We’re prepared to purchase additional capacity,'” Borges explained.
McDermott demonstrated his conviction through action. During February, he acquired $3 million worth of NOW shares using personal funds.
Strategic Acquisitions and Market Expansion
ServiceNow has maintained an active acquisition strategy. The company announced a $7.75 billion transaction in December to acquire cybersecurity provider Armis. Additional deals included AI identity security firm Veza and a $2.85 billion purchase of Moveworks, which specializes in AI assistant and reasoning agent technology.
McDermott addressed investor questions about acquisition velocity during the Q4 earnings discussion, clarifying that the company pursues acquisitions for innovation capabilities rather than revenue additions.
These transactions expand ServiceNow’s presence in cybersecurity and customer relationship management sectors. McDermott states these moves broaden the total addressable market to a minimum of $600 billion, representing substantial growth from the $90 billion figure when he assumed leadership in 2019.
Benchmark initiated coverage on April 1 with a Buy rating and $125 price objective. Analyst Yi Fu Lee characterized the selloff stemming from AI disruption concerns as excessive and positioned NOW as a primary beneficiary of the “Agentic AI super cycle.”
Analyst consensus for the company remains at Buy. ServiceNow’s price-to-earnings multiple stood at approximately 61 times trailing 12-month earnings as of Thursday.
