ServiceNow’s Q2 Earnings Showed It’s More Than an AI Stock

ServiceNow (NOW) has become a key player in enterprise artificial intelligence (AI), yet it remains underestimated. Despite reporting another great quarter, NOW stock is down 27% year-to-date (YTD), underperforming the broader market.

That’s because the market still views it as just an AI company. But ServiceNow's second quarter showed that its next growth engine may be cybersecurity and not just AI. Let's take a closer look.

The Biggest Story in Q2 Was Cybersecurity, Not AI

Valued at a market capitalization of $109 billion, ServiceNow is an enterprise software platform that helps large organizations automate and manage their business operations. The company gained tremendously as enterprises rushed to improve productivity through AI automation. However, now the firm sees its next leg of growth in cybersecurity.

CEO Bill McDermott stated that ServiceNow’s vision is to become an "AI Control Tower" for enterprises. It will be a centralized platform that not only deploys AI but also governs, secures, monitors, and manages all AI systems within an enterprise. The idea behind this is that every time organizations use AI to develop autonomous agents, connected devices, and data access points, they introduce a new security risk. Management estimates that 2.2 billion AI agents will eventually enter enterprises worldwide. At the same time, roughly 40 billion connected devices are expected over the next four years. This puts security as a top priority.

Surprisingly, the company does not wish to compete with Big Tech giants such as OpenAI, Anthropic, Microsoft (MSFT), and Alphabet (GOOGL) to build the smartest AI model. Instead, it intends to develop a platform that makes these AI systems safe to deploy. The company has already built a cybersecurity business that generated $1 billion in annual revenue, making it one of the largest enterprise cybersecurity platforms. Its recent acquisition of Armis strengthens visibility across connected devices, with government agencies increasing adoption. Meanwhile, the Veza acquisition, completed in March, manages identity and access security. Rather than just developing cybersecurity products, this strategy of merging the “AI Control Tower,” Armis, and Veza to create a governance platform focused on AI will propel ServiceNow deeper into this expanding market.

The Q2 numbers showed that this vision is translating into meaningful growth. Subscription revenue increased 25% year-over-year (YOY) to $3.87 billion, while total revenue jumped 24% YOY to $3.98 billion. Total remaining performance obligations (RPO), which reveals revenue yet to be recognized, increased 21% to $29 billion, while current RPO stood at $13.2 billion. The company beat Wall Street’s forecasts for both the top and the bottom lines. 

Importantly, cybersecurity products appeared across many of the company's largest transactions. In Q2, 16 of the company's top 20 deals involved security and risk solutions, while 18 of the top 20 deals involved IT Operations Management (ITOM). In fact, management boasted that ServiceNow is growing faster than any of the top 10 cybersecurity companies. If this bold claim is true, investors should find ServiceNow a new appealing opportunity in cybersecurity, which has long been associated with just workflow software and AI automation.

AI Is Still Important, But It's Becoming the Entry Point

While ServiceNow's cybersecurity business is growing, that doesn’t mean AI has become less important. ServiceNow's AI ACV surpassed $1 billion, keeping the company on pace to surpass its target of $1.5 billion by the end of 2026. Furthermore, deals containing five or more AI products increased 5.5 times from last year, while customers running agentic AI in production increased ninefold over the past nine months.

In fact, AI remains the entry point that is opening the door to larger platform sales. Once customers adopt ServiceNow for AI, many expand into cybersecurity, IT operations, CRM, workflow automation, and employee services. This diversified growth engine creates a much more compelling investment story than what ServiceNow offered before. Analysts predict the company’s earnings to increase by 14% in fiscal 2026 before increasing by 28% in fiscal 2027. NOW stock currently trades at 42 times forward earnings based on Barchart data.

While many investors haven’t realized ServiceNow’s potential, Wall Street is strongly bullish about NOW stock with a consensus “Strong Buy” rating. Out of the 45 analysts covering the stock, 37 have a "Strong Buy," three suggest a "Moderate Buy," three recommend a "Hold" rating, one analyst has a "Moderate Sell," and one has a “Strong Sell” rating. The mean target price for NOW stock is $142.96, which implies 28% potential upside from current levels. Meanwhile, the high price estimate of $248 implies potential upside of 122% over the next 12 months.