This cloud-based software company is seeing strong demand for its newest AI services.
Few trends have been as important to the stock market over the last 25 years as the growth of artificial intelligence (AI). AI stocks have been the driving force behind the S&P 500’s gains for the last three years. As more and more companies look to incorporate generative AI into their operations, investors are already pricing in the potential productivity gains and earnings growth from the new technology.
As a result, many companies with a focus on AI have seen their stock prices soar. That resulted in a flurry of notable stock splits in 2024 to bring share prices back down to levels digestible by retail investors. 2025, however, has been relatively quiet.
But as we approach the final stretch of the year, ServiceNow (NOW +0.36%) announced a 5-for-1 stock split alongside its third-quarter earnings report. The split will be the company’s first since its IPO in 2012 and comes after a spectacular 1,000% gain in the share price over the last decade.
Despite the strong price performance, ServiceNow stock could sill be worth buying for your portfolio right now, according to Wall Street.
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Surging demand for AI services
ServiceNow was quick to integrate generative AI capabilities into its software suite focused on automating workflows in IT, HR, customer service, finance, and operations.
At the start of the year, management set a goal of $500 million in net new annual contract value (ACV) this year for its Now Assist suite. The software embeds generative AI features across various ServiceNow software packages supporting tasks like email and chat replies, incident summaries, and improving productivity with its software via natural language interactions. Management said it’s now on pace to exceed that goal, and it’s making excellent progress toward $1 billion in ACV for 2026.
Likewise, its AI Control Tower, which automates AI workflows across its software, saw its deal volume quadruple year over year in the third quarter. Management expects strong growth from the platform and suggested it’s at an inflection point where growth could accelerate going forward.
Of course, these new AI services are built on top of a broad suite of very powerful and popular enterprise software. ServiceNow has successfully run the land-and-expand strategy, starting with its core IT services and IT operations suites and upselling customers on additional software.
The company benefits from high switching costs, as nobody wants to risk their job by moving away from a market-leading software provider. Additionally, there’s a learning curve for new software, which could cost businesses much more than any savings from another provider. As a result, it consistently sports renewal rates around 98%.
Today’s Change
(0.36%) $3.10
Current Price
$861.87
Key Data Points
Market Cap
$179B
Day’s Range
$840.55 – $863.10
52wk Range
$678.66 – $1198.09
Volume
1.6M
Avg Vol
1.6M
Gross Margin
78.05%
Dividend Yield
N/A
It’s successfully sold more and more products and services to its customers over time. Management provides a chart of customer cohort growth every quarter showing just how much more customers are spending than they did when they originally signed up for the service. Customers who started with ServiceNow in 2016 or earlier have doubled their spend (or more) since their initial contract. It’s also worth pointing out the 2025 cohort has already increased their total initial ACV by 45%, pointing to the strength of ServiceNow’s new AI services.
That financial strength gave management the confidence to split its shares. While a stock split doesn’t change any of the underlying fundamentals of a business, it is a small signal from management and the board of directors that the stock price could still keep climbing. A stock split will make it easier for retail investors to buy shares and provide employees with greater flexibility in managing their stock-based compensation.
Here’s why the stock is still worth buying
Despite the strong price appreciation leading up to the stock split, the shares still look attractive, according to Wall Street. The median analyst price target sits at $1,165, which is about 32% higher from the trading price as of this writing.
The company continues to produce very strong revenue growth, fueled by adoption of its AI services. Sales climbed 20.5% year over year in the third quarter, and management expects 19.5% growth in the fourth quarter. What’s more, operating margin continues to expand as it scales thanks to the operating leverage inherent in software sales. Management expects operating margin to expand 150 basis points for the full year.
Management has done a great job of rolling out new features, services, and packages that enable it to grow how much users spend over time. The addition of AI capabilities should enable it to raise contract values across the board, ensuring steady revenue growth for years to come through a combination of new customers and bigger contracts with existing customers.
The stock is arguably expensive. With a forward PE of 51, investors are pricing in a lot of growth. Its price-to-sales ratio of 14 isn’t much more appealing. But few companies are in a position to produce strong revenue and earnings growth in the 20% range for the foreseeable future. As such, ServiceNow arguably deserves a high valuation. Wall Street certainly seems to think so.