ServiceNow 2Q26 Earnings Review: AI Monetisation Is Becoming Real

ServiceNow 2Q26 earnings review: clean beat across key metrics.

ServiceNow delivered a strong 2Q26 result that reinforced our positive view on the stock, beating the high end of guidance across all major top-line and profitability metrics while raising its full-year subscription revenue outlook. More importantly, the quarter showed that AI monetisation is moving from narrative to commercial evidence.

Subscription revenue rose 24.5% y/y to USD3.88Bn and total revenue grew 24% y/y to USD3.99Bn. cRPO reached USD13.20Bn (up 21.5% y/y) and total RPO USD29.0Bn (up 22% y/y). Non-GAAP EPS of USD0.90 was supported by a 29.5% non-GAAP operating margin, ahead of guidance.

Table 1: Key financial metrics

Source: ServiceNow Quarterly Report, Analyst estimates. Data as of 23 July 2026.

The result also came against a tough enterprise software backdrop. The SaaSpocalypse fear is that AI agents will shrink demand for seat-based software, but Q2 suggests this risk may be overstated for ServiceNow. ServiceNow is turning AI into an additional monetisation layer on top of its subscription base.

Guidance was constructive, though not aggressive. FY2026 subscription revenue guidance was raised to USD15.76Bn-USD15.78Bn (22.5% y/y growth), while Q3 guidance implies subscription revenue of USD3.975Bn-USD3.980Bn and cRPO growth of around 20%, both in constant currency. Management noted that strong U.S. Federal demand pulled some on-premises subscription revenue from Q3 into Q2, so the softer Q3 setup reflects timing rather than weakening demand.

Broader software concerns initially weighed on the stock, which fell -6.5% during the regular session before results were released. However, the stock recovered around 5% after-hours following the stronger-than-expected results, leaving the share price broadly flat after accounting for the recovery.

AI monetisation is moving from narrative to commercial evidence

ServiceNow AI crossed USD1Bn in annual contract value, a milestone showing customers are paying for AI, not just testing it. Agentic deployments rose ninefold in nine months, while the proportion of renewing customers purchasing agentic AI doubled both sequentially and year on year.

Figure 1: ServiceNow AI ACV growing on track to reach USD1.5Bn target by FY2026

This answers the key question of whether AI compresses the seat-based model or creates a new revenue engine, and Q2 leans toward the latter. AI net new ACV again beat expectations, with adoption pulling through demand in adjacent areas (Security, Risk, ITOM) rather than cannibalising the ITSM base. Pricing also supports the thesis, with Pro Plus subscription tiers commanding uplifts above 30%, while AI-native products carry premiums of 20-30%.

Product updates reinforce this pathway. Otto unifies Now Assist, Moveworks and AI Experience into a single cross-departmental AI layer, while AI Control Tower adds discovery, governance and security capabilities. Action Fabric also allows third-party AI agents to act securely through ServiceNow workflows, with Anthropic as the first design partner.

cRPO growth still reflects broad subscription demand, not only AI

cRPO growth is not driven by AI alone. ServiceNow closed 123 deals above USD1Mn in net new ACV (+40% y/y) and ended the quarter with 658 customers above USD5Mn ACV (+23% y/y), supported by longer commitments and partner ecosystem demand. This points to broad enterprise traction, not a narrow AI spike, and suggests that ServiceNow's platform remains a budget priority even as AI infrastructure spending rises across the sector.

Non-current RPO, the USD15.8Bn of committed revenue due beyond twelve months, grew around 34% y/y against cRPO's 21%. Because RPO captures committed contract value and does not fully reflect future usage-based AI consumption, the strong growth in non-current RPO suggests customers are still making multi-year platform commitments, not merely experimenting with AI.

Figure 2: RPO growth reflects longer customer commitments

AI use cases are becoming more tangible

Nearly all 50 US states now use the ServiceNow AI Platform, with agencies reporting outcomes such as a 66% reduction in service desk costs.

In Level 1 ITSM, AI specialists are resolving 80-85% of service requests without human intervention across more than 40 customers, cutting resolution times from days to around 20 minutes. Leidos is using the platform for autonomous AI workflows across 50,000 employees, while Lenovo reports up to 30% lower IT support costs and up to 50% faster employee productivity.

These outcomes move the AI discussion from broad claims to measurable workflow impact, converting potential seat-displacement risk into higher-value AI revenue.

Margins are the key risk to watch

Non-GAAP subscription gross margin declined to 80.5% from 83% a year earlier, reflecting higher hyperscaler usage and accelerating AI adoption. Management still guides for 81% subscription gross margin in FY2026, making margin defence the key test in the second half. To reach this target, ServiceNow will need to show that AI monetisation through premium tiers, service credits, Assist Packs and usage-based components can offset rising infrastructure and inference costs.Looking ahead, we expect subscription gross margin to remain slightly below historical 82% level, but the compression should be manageable if upselling momentum and pricing discipline remain intact.

Investors should also monitor whether recent acquisitions can translate into measurable cross-sell and AI Control Tower adoption. Moveworks, Veza and Armis strengthen ServiceNow’s AI governance, identity and security capabilities, but the commercial evidence is still early. Until management provides clearer proof of revenue contribution, customer adoption or cross-sell momentum, these acquisitions remain an execution risk, particularly as they add integration complexity and near-term margin pressure.

Table 2: Valuation

	FY2025	FY2026E	FY2027E	FY2028E
Revenue (USD Mn)	13,278	16,208	19,557	23,217
Revenue Growth (%)		22.1%	20.7%	18.7%
P/E (x)	44.01	23.00	18.96	15.68
Earnings (EPS, USD)	3.48	4.17	5.04	6.08
EPS growth (%)		19.8%	20.9%	20.6%
Fair P/E (x)				24
Current price (USD)				95.46
Target price (USD)				146.11
Upside potential (%)				53.1%
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 23 July 2026.

Key Takeaway:

We reiterate our BUY rating. Q2 strengthened the AI monetisation thesis while enterprise demand stayed resilient. While ServiceNow continues to trade at a premium to peers, we believe this is justified by its durable subscription growth, high customer stickiness, expanding AI ACV and strong free cash flow.

The next test is margin defence. If subscription gross margin holds near the guided 81% while AI ACV continues to climb, we believe recent weakness offers an attractive entry point into a high-quality software compounder positioned for the AI workflow era.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.