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Over the past year, advances in synthetic intelligence (AI) have captured the minds of investors. ChatGPT applications and the endless stream of headlines about the “Magnificent Seven” stocks of Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta Platforms, and Apple are fueling a positive narrative about AI’s prospects.
Savvy investors perceive that there are many other winners that will emerge in the AI space, beyond the big tech companies. ServiceNow (NOW 2. 63%) is a company that is becoming an AI powerhouse. If you don’t know, that’s okay. Let’s explore how ServiceNow is evolving from an IT facilities company to an end-to-end virtual solution built around AI.
A term commonly used through ServiceNow profit control calls is “digital transformation. “It’s the business narrative for office automation to help increase productivity and provide decision-makers with data-driven insights.
The company’s NOW platform specializes in connecting knowledge silos at the enterprise level. In doing so, ServiceNow seamlessly integrates knowledge of visitor appointment control (CRM) tools, business resource creation (ERP) plan platforms, and more.
According to Statista, spending on virtual transformation is expected to reach $3. 9 trillion by 2027, up from $2. 5 trillion today. When you harness the power that synthetic intelligence (AI) can bring to the workplace, ServiceNow’s loadable marketplace is poised to transform. Backwards.
For the quarter ended Dec. 31, ServiceNow closed 168 transactions for a price of at least $1 million in annual contract price (ACV). While that represents an impressive 33% year-over-year expansion rate, there are details that I find more encouraging.
ServiceNow CFO Gina Mastantuono shared with investors that generative AI products “generated the largest net contribution of new LCA for our first full quarter of any of our new product families” in the fourth quarter.
ServiceNow is classified as a software-as-a-service (SaaS) company. Some of the most important metrics for SaaS companies are remaining functionality obligations (RPOs), renewal rates, and traffic expansion. RPO investors have an idea of the retraso. de a business or activity that has not yet been recognized. As of Dec. 31, ServiceNow had $18 billion in RPOs, a 29% year-over-year increase.
Also, the company’s 99% renewal rate is incredible. This means that ServiceNow keeps almost all of its consumers year after year, consistently with an incredibly minimal churn rate. Over the past two years, ServiceNow has increased the number of consumers paying at least $1 million in LCA, from 1,350 to 1,897. However, within this cohort, clients pay an average of at least $4. 5 million in LCAs per year.
Accelerated visitor acquisition coupled with the company’s strong retention rates have allowed ServiceNow to cross-sell its products at a higher rate. Given the secular call to push AI forward lately, ServiceNow’s next frontier of expansion has only just begun.
The chart below compares ServiceNow to a peer set of other giant SaaS companies. ServiceNow’s price-to-sales (P/S) ratio of 16. 7 is right in the middle of this cohort.
One of the key elements of the chart is that valuation multiples have declined in recent months. This is totally surprising. Last year, the euphoria around AI helped the Nasdaq Composite rally 43% and the S
I think a smart strategy for investing in ServiceNow would be to use Load Average (DCA). While I consider the ServiceNow business to be in a strong overall position lately, one thing I’m sure of is that the festival in the area of AI is increasing. For this reason, I believe that the technology sector specifically could experience pronounced volatility in the short to medium term.
However, in the long term, I see AI as an attractive opportunity for expansion and believe ServiceNow is in a prime position to dominate. While ServiceNow is rarely necessarily very cheap, its existing trading levels suggest that it may be priced higher than some other stocks that are expensive.
Alphabet’s Suzanne Frey is a member of the board of directors of The Motley Fool. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Randi Zuckerberg, a former market progression leader and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the board of directors of The Motley Fool. Spatacco holds positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Atlassian, Datadog, Meta Platforms, Microsoft, MongoDB, Nvidia, Palantir Technologies, ServiceNow, Snowflake, Tesla, and Workday. The Motley Fool recommends the following options: $395 long calls in January 2026 to Microsoft and $405 short calls in January 2026 to Microsoft. The Motley Fool has a disclosure policy.
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