In May, Bank of America analyst Tal Liani initiated coverage of ServiceNow (NOW) with a bullish Buy recommendation and a $130 price target, positioning artificial intelligence as the company’s most powerful growth catalyst rather than a threat. Following a strong rally that reached that target, Liani has now upgraded his outlook significantly.
On August 19, Liani raised ServiceNow’s price target to $150 from $130 while maintaining the Buy rating, as reported in a note shared with TheStreet. His updated optimism stems from three key factors: broad-based expansion in software valuations, accelerating momentum among select infrastructure players, and growing confidence that AI will not disrupt enterprise software platforms like ServiceNow but instead enhance them.
Importantly, Liani’s underlying financial projections for ServiceNow remain unchanged. What’s shifting is investor sentiment aligning more closely with reality.
Earlier this year, many enterprise software stocks faced pressure due to fears that AI-driven automation could render workflow management tools obsolete. However, ServiceNow’s Q2 2026 results directly challenged that narrative.
The company announced that its AI annual contract value (ACV) exceeded $1 billion during the quarter. CEO Bill McDermott highlighted that deployments of ServiceNow AI saw a ninefold increase over nine months. Additionally, remaining performance obligations (RPO) rose to $29 billion—a 21% year-over-year gain—signaling deeper customer commitments and widening partner engagement.
“With our AI Control Tower as the market standard, agentic deployments of ServiceNow AI increased ninefold in just nine months.”
ServiceNow isn’t merely adapting to the rise of AI—it’s becoming the central governance layer enabling large-scale AI integration across enterprises. Its collaborations with tech giants such as Nvidia, Microsoft, Anthropic, and AWS position it at the core of the AI ecosystem.
Q2 Results Validate Bullish Thesis
ServiceNow delivered robust second-quarter results on July 22, surpassing Wall Street expectations across all major metrics:
- Subscription revenue climbed to $3.877 billion, up 24.5% YoY
- Total revenue reached $3.987 billion, reflecting 24% growth YoY
- Earnings per share came in at $0.90, beating estimates of $0.86
- RPO stood at $29.0 billion, representing 21% YoY growth
- Current RPO totaled $13.20 billion, indicating solid near-term demand
The company also revised its full-year guidance upward, projecting 2026 subscription revenue between $15.76 billion and $15.78 billion—an acceleration to approximately 21% constant-currency growth.
Margin discipline remains strong, with non-GAAP operating margins expected to reach 31.5% and subscription gross margins holding steady at 81%. Looking ahead, management aims for further margin improvements in 2027, including target ranges for free cash flow margin expansion of 35% to 37%.
These figures underscore a business thriving amid rapid AI adoption—not suffering from it.
Expanding Partnership Network Strengthens Competitive Moat
Recent developments highlight how deeply entrenched ServiceNow is becoming within the evolving AI landscape. Notably:
- Anthropic joined as the first design partner for ServiceNow Action Fabric, linking Claude directly into platform workflows
- AWS Marketplace transactions surpassed $1 billion
- NVIDIA expanded collaboration to bring agentic AI governance from desktop environments to data centers
- Microsoft integrated ServiceNow AI specialists into its Agent 365 suite
- Nearly all U.S. states are leveraging the ServiceNow AI Platform for citizen services, achieving reductions of up to 66% in service desk costs
Meanwhile, Tech Mahindra announced an extended multi-year partnership on August 20 aimed at transitioning enterprise AI initiatives from pilot phases to full-scale production.
This flurry of strategic activity underscores a broader trend: leading technology partners increasingly view ServiceNow as essential infrastructure for deploying and managing enterprise-grade AI solutions.
Stock Lagging Behind Fundamentals Creates Investment Opportunity
Despite robust operational execution, ServiceNow shares have lagged the broader market. Year-to-date, NOW stock has declined nearly 15.34%, compared to an 11.84% return for the S&P 500. Over the trailing twelve months, the underperformance widens to 27.16% vs. 19.70% for the index.
However, valuation metrics suggest room for correction. Trading at a forward P/E of 29.15x, ServiceNow appears modestly priced relative to peers given its 24.5% subscription revenue growth and accelerating AI monetization.
The disconnect between performance and pricing reflects lingering skepticism from earlier in the cycle when investors feared AI would commoditize ServiceNow’s offerings. Recent earnings dispel those concerns.
For investors listening closely, Liani’s revised target signals that the revaluation may still be in early stages—a window of opportunity created by persistent mispricing rather than deteriorating fundamentals.
