ServiceNow, Inc.

New York Stock Exchange
Back to all articles
Bullish +65

Prediction: ServiceNow Will be Worth This in 2028

AI-generated analysis

📉 ServiceNow shares are trading near $131, down roughly 30% year-over-year, despite a 98% renewal rate and AI ACV exceeding $1 billion.

🚀 Internal models project the stock could reach $242 in the base case or $450 by 2028, far above the Wall Street consensus of $142.

🤖 AI agents are now closing 80% of service requests without human interaction, signaling rapid adoption of the company's agentic enterprise platform.

📉 GAAP subscription gross margins fell to 73.5% from 80% in Q2 due to higher intangibles amortization from acquisitions including Armis and Veza.

💸 Q2 operating income dropped 54.75% year-over-year as integration costs from recent M&A activity weighed on the bottom line.

📊 The company is targeting $30 billion in subscription revenue by 2030, aiming to maintain a Rule of 60+ growth trajectory.

🛡️ CEO Bill McDermott stated that cybersecurity will become bigger than ServiceNow itself in the coming years as a key growth pillar.

📈 The stock currently trades at approximately 14x forward earnings, which the author considers cheap relative to its 24.5% YoY subscription revenue growth.

⚠️ A prolonged freeze in enterprise IT budgets is identified as the primary risk that could derail the aggressive price targets for 2028.

Bullish Signals
  • ServiceNow has crossed a $1 billion annual contract value mark specifically within its AI revenue stream, demonstrating strong product-market fit.
  • The company maintains an exceptional 98% renewal rate, indicating high customer stickiness and satisfaction despite recent stock volatility.
  • AI agents are closing 80% of service requests without human interaction, reducing operational costs and increasing efficiency for enterprise clients.
  • Internal models project a base-case stock price of $242 by 2028, implying significant upside from current levels based on compounding subscription growth.
  • The company is targeting $30 billion in subscription revenue by 2030, reflecting confidence in its long-term Rule of 60+ growth strategy.
  • ServiceNow is positioning itself as the control layer for the agentic enterprise, with deployments jumping ninefold in just nine months.
Risk Factors
  • GAAP subscription gross margins declined to 73.5% from 80% in Q2 due to higher intangibles amortization associated with acquisitions like Armis and Veza.
  • Q2 operating income dropped 54.75% year-over-year as integration costs from recent M&A activity significantly impacted the bottom line.
  • The stock has fallen approximately 30% over the past year, trading near multi-year lows despite strong underlying business fundamentals.
  • A prolonged freeze in enterprise IT budgets is explicitly identified as a risk that could sink the entire thesis for future price targets.
Full Analysis
ServiceNow (NOW) is trading near multi-year lows around $131 despite reporting strong fundamentals, including a 98% renewal rate and AI annual contract value (ACV) crossing the $1 billion mark. The article highlights a significant divergence between the company's operational performance and its current stock price, which has dropped approximately 30% over the past year. Analyst McDermott projects NOW could reach $242 in a base case or potentially $450 by 2028, significantly outpacing Wall Street's consensus target of roughly $142. The internal model cites accelerating subscription revenue growth and the rapid adoption of AI agents, which are now closing 80% of service requests without human interaction. However, near-term headwinds include a decline in GAAP subscription gross margins to 73.5% due to intangibles amortization from acquisitions like Armis and Veza, alongside a sharp drop in Q2 operating income driven by integration costs. The author argues that the market is overly focused on these short-term margin pressures while ignoring the durable compounding nature of the business. To achieve the $450 target by 2028, ServiceNow must successfully scale its cybersecurity franchise and normalize margins as acquisition-related expenses fade. While an enterprise AI spending pause poses a risk to this aggressive thesis, the company maintains a strong long-term track record with over 790% growth over the last decade.