NOW Stock Climbs Back From Recent Setback as Q4 Earnings Drive Bullish Outlook

ServiceNow equity has staged an impressive turnaround after a brief dip earlier this month. While the stock retreated roughly 6.4% in the weeks following the latest earnings announcement—underperforming the broader S&P 500—mounting evidence suggests a recovery is taking shape. The company’s fourth-quarter results, coupled with strong forward guidance, have reignited investor enthusiasm and raised fresh questions about whether this rebound marks the beginning of a sustained rally.

Q4 Earnings Crush Expectations, Signaling Momentum Ahead

ServiceNow delivered a commanding Q4 2025 performance that exceeded analyst forecasts on both top and bottom lines. Adjusted earnings per share hit $0.92, surpassing the Zacks consensus estimate by 5.75% and reflecting a robust 26% year-over-year increase. Revenue climbed to $3.57 billion, beating expectations by 1.25% and advancing 20.7% annually. On a constant currency basis, sales grew a more modest but still healthy 19.5% year-over-year to $3.51 billion.

Subscription revenues—the company’s highest-margin business—expanded 20.9% on a reported basis, reaching $3.47 billion, or $3.41 billion at constant currency (a 19.5% gain). Professional services and ancillary income climbed 12.1% year-over-year to $102 million. The company’s current remaining performance obligations (cRPO)—a key indicator of future revenue visibility—jumped 25% on a reported basis to $12.85 billion, demonstrating robust customer commitment and contract stability.

AI-Powered Products Drive Customer Expansion and Deal Volume

The standout feature of ServiceNow’s Q4 results was the accelerating traction of its artificial intelligence portfolio, which has become a meaningful growth accelerant. The company notched 244 transactions exceeding $1 million in net new annual contract value (NNACV) in the quarter, representing nearly 40% year-over-year expansion. More impressively, ServiceNow ended Q4 with 603 enterprise customers generating more than $5 million in annual contract value—a 20% year-over-year surge that underscores the broadening appeal of its platform.

Now Assist, the company’s flagship AI assistant, emerged as a particular bright spot. The product’s net new ACV exceeded $600 million and more than doubled on a yearly basis, including 35 deals surpassing the $1 million threshold. Workflow Data Fabric continued its rapid ascent, appearing in 16 of NOW’s top 20 deals in Q4 and driving attach rate improvements throughout 2025. RaptorDB Pro, the company’s database offering, more than tripled net new ACV year-over-year, encompassing 13 seven-figure transactions alone.

The company also highlighted explosive growth in transaction volumes and workflow processing: the number of workflows and transactions each expanded beyond 33%, with workflows growing from $60 billion to $80 billion and transaction processing rising from $4.8 trillion to $6.4 trillion. AI Control Tower deal volume nearly tripled sequentially, while monthly active users on the AI platform grew 25%—signaling deepening customer engagement and expanding use cases.

Strong Financial Positioning and Expanded Margins

ServiceNow’s operating model continues to demonstrate resilience and scalability. Non-GAAP gross margin contracted 160 basis points year-over-year to 80.3%, a modest decline that reflects the natural mix shift as higher-margin subscription revenues grow faster than professional services. Subscription-specific gross margin landed at 82.7%, down the same 160 bps sequentially.

More encouraging was the operating expense trajectory: as a percentage of revenues, operating costs declined 180 basis points year-over-year to 64.2%, signaling effective cost management at scale. The company’s non-GAAP operating margin expanded a solid 140 basis points to 30.9%, demonstrating operating leverage as the business matures.

Cash generation accelerated meaningfully. Operating cash flow surged to $2.24 billion in Q4 from $813 million in Q3, while free cash flow vaulted to $2.03 billion (up from $592 million in the prior quarter). Free cash flow margin improved to 57%, up from 47.5% a year earlier. The company maintained a fortress balance sheet with $6.28 billion in cash and marketable securities as of Dec. 31, 2025, compared to $5.41 billion three months prior.

Shareholders also benefited from capital return initiatives: ServiceNow repurchased 3.6 million shares during Q4 and announced a new $5 billion repurchase authorization alongside a $2 billion accelerated share repurchase program.

2026 Guidance Suggests Sustained Growth Trajectory

Management’s forward guidance painted an optimistic picture for 2026. The company expects subscription revenues of $15.53–$15.57 billion, implying growth of 20.5–21% on a GAAP basis and 19.5–20% at constant currency (with a 1% contribution from Moveworks). The company guided non-GAAP subscription gross margin at 82% and operating margin at 32%, with free cash flow margin expected to reach 36%—a 100 basis point increase versus 2025.

For Q1 2026 specifically, subscription revenues are projected between $3.65–$3.67 billion, representing year-over-year growth of 21.5% on a GAAP basis and 18.5–19% at constant currency. The guidance incorporates roughly 150 basis points of headwind from a shift toward hosted versus self-hosted delivery models, partially reflecting robust adoption of the company’s hyperscaler offerings. Moveworks is forecast to add 1% to Q1 revenues. ServiceNow anticipated an operating margin of 31.5% in the current quarter, with cRPO growth projected at 22.5% on a GAAP basis and 20% at constant currency.

Analyst Estimates Trend Higher Amid Positive Sentiment

In the aftermath of the earnings release, research analysts have progressively raised their profit expectations. The consensus estimate has shifted 5.32% upward over the past month, signaling growing conviction around the company’s execution and market opportunity. This momentum in estimate revisions often precedes stock appreciation, especially when coupled with strong forward guidance.

Valuation and Investment Positioning

ServiceNow’s current investment metrics present a mixed picture depending on investor strategy. The stock earns a robust Growth Score of A, reflecting accelerating top-line expansion and strong future prospects. The Momentum Score registered a B, indicating solid near-term purchasing interest. However, the Value Score languished at D, placing the stock in the bottom 40% for value investors—unsurprising given its growth trajectory and premium valuation.

The aggregate VGM Score (combining all three factors) stands at B, suggesting a balanced attractiveness profile for investors without strict strategic constraints. Zacks assigned the stock a Rank of #3 (Hold), implying an expectation of in-line returns over the next several months rather than a pronounced outperformance or underperformance relative to the broader market.

Conclusion: Setting Up for a Potential Breakout

NOW stock’s recent pullback created a tactical entry point for growth-oriented investors. With Q4 earnings decisively beating expectations, AI products driving a meaningful portion of deal volume and attach rates, and management guiding for continued 20%+ subscription revenue growth in 2026, the fundamental backdrop has strengthened considerably. While the stock remains richly valued on traditional metrics, the upward revision trajectory and robust business fundamentals suggest the 6.4% decline could prove temporary—a potential springboard for continued appreciation as the market digests the company’s AI-fueled growth story.