ServiceNow Inc

US-based software company ServiceNow delivered another impressive result that once again came in ahead of both its own guidance and analyst expectations. Subscription revenue grew 24.5% year on year to $3.9 billion, at a healthy non-GAAP operating margin of 29.5%. Pipeline stayed strong, with current remaining performance obligations up 21% to $13.2 billion. Importantly, more of that demand is now landing through consumption and premium pricing rather than seats, which lets the company charge for the AI work itself rather than the number of people using it. We continue to believe ServiceNow is one of the highest-quality software businesses globally, and even after a strong recovery from its lows we think the valuation still understates the long-term earnings power of the business.

ServiceNow has been a significant contributor to our portfolio, with a 30.4% increase in performance this month. The market has shifted its perception, moving from viewing AI as a threat to recognizing it as a growth driver for ServiceNow. This change in sentiment follows a strong quarterly result, reinforcing our belief in the company's strategic advantage and loyalty in the market. We are optimistic about ServiceNow's future as it continues to leverage AI for growth.

We believe that ServiceNow is also one of the best businesses in the world. ServiceNow automates workflows in large and complex enterprises. Their platform sits on top of all of an enterprise’s data and systems of record. This very unique and enviable position allows ServiceNow to orchestrate and automate work across departments, enterprise wide. ServiceNow grew revenue 21%, adjusted EBIT 28%, and free cash flow per share 33% in 2025. Despite the strong performance, the stock is down approximately 40% year to date and 60% since the beginning of 2025. Bears fear that ServiceNow will be disrupted by AI. We believe that AI makes ServiceNow’s platform better. The company is very well managed, has a net cash balance sheet, produces significant free cash flow, and is accelerating share repurchases at what we believe is a significant discount to intrinsic value.

We believe that ServiceNow is also one of the best businesses in the world. ServiceNow automates workflows in large and complex enterprises. Their platform sits on top of all of an enterprise’s data and systems of record. This very unique and enviable position allows ServiceNow to orchestrate and automate work across departments, enterprise wide. ServiceNow grew revenue 21%, adjusted EBIT 28%, and free cash flow per share 33% in 2025. Despite the strong performance, the stock is down approximately 40% year to date and 60% since the beginning of 2025. Bears fear that ServiceNow will be disrupted by AI. We believe that AI makes ServiceNow’s platform better. The company is very well managed, has a net cash balance sheet, produces significant free cash flow, and is accelerating share repurchases at what we believe is a significant discount to intrinsic value.

ServiceNow is a clear example of a company thriving in the AI landscape, with its AI suite, Now Assist, tracking toward roughly $1.5 billion of annual contract value in 2026, which is 50% above the target management set only nine months ago. The number of customers spending over $1 million a year on Now Assist has more than doubled in the most recent quarter. This growth demonstrates ServiceNow's ability to adapt and expand its market reach by steering customers toward premium tiers and a consumption-based pricing model. The company holds a decisive edge due to its proprietary data, established distribution, and trust within enterprises, positioning it well to capitalize on the evolving software landscape.

ServiceNow is positioned to benefit from the rapid adoption of AI-driven enterprise workflow automation, which is a key component of the digitization trend. The company is highlighted as a significant player in the technology sector, contributing to operational productivity and efficiency tools that are increasingly in demand. The manager notes that ServiceNow, along with other selected companies, offers 'growth-at-reasonable-price in non-mega-cap digital plays,' indicating a favorable outlook for its future performance.

We initiated positions in ServiceNow and other high-quality businesses that we believe have been unfairly penalised. Our underwriting has centred on long-term moat durability. The active discrimination between AI winners and perceived losers may be an advantage if market leadership broadens, and we added to wider-moat businesses such as ServiceNow, which we believe could benefit from greater data utilisation and regulatory complexity rather than be disintermediated by them.

ServiceNow (NOW) has raised its 2026 AI revenue guidance by 50% from the prior quarter and announced $300 million in cost savings from internal AI adoption. The company's gross dollar retention remains steady at 98%, indicating strong customer loyalty and satisfaction. This performance suggests that ServiceNow is effectively leveraging AI to enhance its offerings and operational efficiency, positioning it well for future growth in a rapidly evolving market.

ServiceNow runs the digital plumbing of the enterprise: the workflows that move a request from 'someone asked' to 'someone did it.' Automation is not a threat to that kind of business. The more work an organization wants to hand to software agents, the more it needs a trusted place to route, track, and govern what those agents do. We added here as well during the quarter.

ServiceNow, Inc. had mixed organic subscription results as it navigated the evolving enterprise AI landscape. While the manager believes that ServiceNow's platform strategy is gaining traction, they note that the financial benefits may take time to fully materialize.