Here is something worth sitting with. ServiceNow (NYSE: NOW) has shed roughly 37% from its 52-week high. Its subscription revenue grew 22% last quarter. Its backlog keeps expanding. And yet the stock has been trading like the business is broken.
It is not.
The selloff has a specific origin. Shares plunged sharply after Q1 as investors focused on geopolitical deal delays in the Middle East, softer near-term cRPO expectations, and concerns surrounding acquisition-related margin pressure. Shares tumbled after Q1 results on April 22, as the company projected acquisition-related headwinds to 2026 margins following the closing of the Armis deal. That is the reason the stock is where it is. Not the business.
The Numbers Heading Into July 22
ServiceNow is scheduled to release its second-quarter 2026 results on July 22. The consensus estimate for second-quarter revenues is currently pegged at about $3.92 billion, indicating roughly 22% growth from the year-ago quarter. ServiceNow has beaten consensus EPS estimates in each of the last four quarters, according to widely cited earnings-tracker summaries. That track record matters. Consistent beats are not accidents.
Current remaining performance obligations (cRPO) climbed 22.5% year-over-year to $12.64 billion. Remaining performance obligations increased 25% year-over-year to $27.7 billion. This is contracted future revenue. It does not disappear because the stock has sold off.
Slight tangent, but worth noting: ServiceNow highlighted continued strength at the high end of the enterprise base in Q1. These are not vanity metrics. They measure how deeply the platform is embedding into large enterprises.
What the Business Is Actually Building
At its Knowledge 2026 conference, ServiceNow announced Project Arc with NVIDIA, expanded its AI Control Tower capabilities for governance, and introduced ServiceNow Otto as a unified AI experience spanning the platform.
ServiceNow says its Autonomous Workforce already handles more than 90% of internal employee IT requests, and that its Level 1 Service Desk AI Specialist resolves assigned cases 99% faster than when those cases are handled by human agents. The company has also published documentation describing how third-party AI clients (including tools such as Microsoft Copilot and Claude) can connect to ServiceNow via Model Context Protocol (MCP).
The company expanded a multiyear collaboration with IBM to fuse ServiceNow’s platform with IBM’s AI, data, and automation stack, including watsonx, aimed at modernizing legacy systems and unlocking enterprise data. A Hewlett Packard Enterprise tie-up also connects HPE GreenLake with ServiceNow’s platform for AI-powered service delivery.
Why the Market Got This Wrong
The bears have a point on margin. While ServiceNow continues to benefit from strong AI adoption and an expanding enterprise platform, rising operating expenses, intensifying competition, longer enterprise spending cycles, and valuation risk could limit upside even if the company delivers another earnings beat. Fair. But the margin pressure was acquisition-driven, not structural. And Armis adds cyber exposure management capabilities at exactly the moment enterprises are scrambling to govern AI agents at scale.
NOW is positioning itself as an AI platform that can orchestrate work across systems, including with agentic AI and governance layers such as AI Control Tower. That is the real business model shift. Seat-based SaaS has a ceiling. Usage and workflow-driven expansion does not.
Forward Scenarios
Bull: Q2 revenue clears the ~$3.92 billion bar and margin guidance stabilizes. Middle East deal closings resume in H2. The stock re-rates toward prevailing Street targets (which cluster in the low-to-mid $140s on many aggregators), implying meaningful upside from recent levels.
Base: Revenue beats modestly. Margins remain under pressure but show sequential improvement. Stock recovers as the market accepts that the Q1 overreaction was overdone.
Bear: Q2 shows additional deal slippage and margin deterioration accelerates. The stock re-tests prior lows. The thesis has to be rebuilt from scratch.
What to Watch on July 22
- cRPO growth: a meaningful deceleration would spook the market again
- Armis margin drag: is it stabilizing or widening?
- Middle East deal recovery: management previously flagged deal-timing pressure tied to the region
- Now Assist monetization: the AI product narrative needs to show up in revenue
Analyst sentiment remains broadly positive across major tracking services, with consensus ratings commonly reported as Buy/Strong Buy and average price targets generally around the low-to-mid $140s (with a wide range between low and high targets).
What’s interesting is that everyone is looking at the same margin problem and arriving at different conclusions. The bulls think it is temporary. The bears think it is structural. July 22 probably does not fully resolve that debate. But it will tilt it one way or the other.
For informational purposes only.
