ServiceNow continued delivering excellent revenue growth in its latest quarterly report, yet the news once again failed to lift the beaten-down stock. Brokers from Vaulltier dive into this topic, noting that a persistent narrative around AI disrupting the software layer has weighed heavily on SaaS stocks broadly, leaving ServiceNow down 40% on the year.

Despite that steep decline, the company’s underlying growth hasn’t slowed at all. Its platform remains the backbone of many customers’ entire software stacks, with particularly strong momentum in both its AI and cybersecurity offerings.

The Numbers Behind an Accelerating Business

For the second quarter, ServiceNow delivered strong financial results, with revenue rising 24% year over year to $3.99 billion and adjusted earnings per share increasing 11% to $0.90, both exceeding analyst expectations. 

The company’s subscription revenue, which represents its core recurring business, grew an even more impressive 25% year over year to $3.88 billion, reinforcing the strength of its underlying model.

Looking deeper, the growth trend becomes even more compelling. On a constant currency basis, subscription revenue growth reaccelerated from 19% in Q1 to 23% in Q2. In a broader software environment where many companies are experiencing slowing growth rates, this kind of reacceleration stands out as a meaningful signal of sustained demand.

Overall, the results highlight a business that is not only maintaining strong momentum, but in some areas accelerating despite macro headwinds. That combination of beating expectations, expanding recurring revenue, and improving growth trends points to continued operational strength beneath the surface.

AI and Security Are Becoming Real Growth Engines

The company’s AI annual contract value surged 40% quarter over quarter to more than $1 billion, and management indicated it’s on track to reach $1.5 trillion by year-end. Its cybersecurity business has also crossed $1 billion in annual contract value and is reportedly growing faster than any other top competitor in the space.

Customer relationship management is emerging as another bright spot, already representing a $2 billion annual contract value business with accelerating growth. A closely watched forward-looking metric, remaining performance obligations, rose 21% to $29 billion, reinforcing that this growth has real staying power.

Guidance Points to More Growth Ahead

Looking to the third quarter, management projected subscription revenue growth of 20.5%, landing in a range of $3.975 billion to $3.98 billion. For the full year, the company raised its subscription revenue guidance to a range of $15.76 billion to $15.78 billion, representing growth of 22.5%.

Management also suggested that this guidance is likely conservative, with potential upside given the strength of new contract signings. That kind of confidence from leadership, paired with beat-and-raise results, stands in sharp contrast to the stock’s continued underperformance.

Why the Valuation Looks Attractive

At a forward price-to-sales multiple of 5 based on 2027 estimates and a forward price-to-earnings ratio of 18, ServiceNow appears undervalued relative to its fundamentals. 

The business benefits from a highly recurring revenue model, strong gross margins near 75%, and revenue growth exceeding 20% annually, a combination that typically commands a premium valuation. While valuation alone isn’t a sufficient reason to invest, it meaningfully strengthens the overall investment case when paired with solid operational performance.

Concerns around AI disruption also seem overstated. ServiceNow’s platform is deeply embedded in customer workflows and enterprise data, making it difficult to replace. 

In addition, most organisations are unlikely to rely entirely on a single AI model provider, preferring instead a neutral orchestration layer that can integrate multiple systems. This dynamic reinforces the importance of independent platforms like ServiceNow, which are positioned to sit at the centre of enterprise AI adoption rather than be displaced by it.

The Bottom Line for Long-Term Investors

The company’s AI Control Tower platform, built to monitor and govern AI agents across enterprise environments, is emerging as a potentially powerful long-term growth driver as agentic AI adoption accelerates. 

This positions the business to play a central role in how organisations manage increasingly complex AI ecosystems, an area expected to see significant investment over the coming years. At the same time, recent acquisitions of Armis and Veza have meaningfully strengthened its security capabilities, enhancing its ability to deliver end-to-end protection in AI-driven environments.

Despite these strategic advantages, the stock has faced a sharp 40% decline, largely driven by broader market concerns around AI disruption rather than clear signs of fundamental business deterioration. 

In fact, the underlying picture appears more constructive. The company continues to benefit from accelerating subscription growth, indicating strong demand for its core offerings, while its current valuation looks increasingly attractive relative to its long-term potential.

Taken together, the combination of expanding AI-focused products, improving security positioning, and resilient recurring revenue growth suggests a compelling setup for patient investors. The recent weakness may reflect short-term sentiment pressure, rather than a breakdown in the company’s long-term growth trajectory.