There are a lot of reasons an executive might sell shares in their own company; there's only one reason they'd buy the stock. Insider buying can be a strong signal of management's confidence that a company's stock is undervalued by the market and should prompt investors to take a closer look.
That's why Bill McDermott's plan to purchase $3 million of ServiceNow (NOW 2.46%) is worth noting. A recent SEC filing shows McDermott's plans to buy those shares on Feb. 27, the earliest date possible he can buy new shares without having to return any profits on previous sales of the stock to shareholders. Additionally, a handful of other executives cancelled all of their upcoming automated stock sales. McDermott said, "This is a once-in-a-generation moment with ServiceNow."
The news of McDermott's purchase plan comes after ServiceNow's stock price declined considerably at the start of the year, along with many other software stocks. Here's why McDermott might be right.
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What's weighing on the stock price?
ServiceNow started as a software package for IT service management, but it now sports an ever-expanding portfolio of products and services. Last year, it announced plans to acquire cybersecurity companies Armis and Veza. However, many analysts feared ServiceNow overpaid for the additions to its portfolio, pushing its stock value lower.
McDermott told analysts that ServiceNow is done making big acquisitions for now. "You can give us back the market cap," he joked on the company's fourth-quarter earnings call.
But analysts have now turned their attention to how generative artificial intelligence (AI) could disrupt the entire software sector. Releases from Anthropic, including Claude Cowork and a new legal plug-in for the service, have shown the potential for the leading AI research labs to displace many of the entrenched software packages enterprises currently pay for. There are worries that ServiceNow and other SaaS stocks won't grow earnings per share quite as quickly as anticipated and could see far fewer customers in the future.
NYSE: NOW
Key Data Points
But McDermott is positioning ServiceNow to put AI first. He was quick to integrate generative AI into ServiceNow's existing software. Its Now Assist AI suite reached $600 million in annual contract value at the end of 2025. That should surpass $1 billion before the end of 2026.
Including agentic AI throughout its software is key for ServiceNow. Goldman Sachs analysts estimate AI agents will make up the majority of the SaaS market by the end of the decade. Software companies that don't adapt to the new technology could be left in the dust.
ServiceNow's AI Control Tower platform aims to be the central hub for developing and deploying AI agents, both from ServiceNow and third parties. Executing on that goal requires aggregating many services through partnerships or acquisitions. It's already seeing strong momentum, with a growing number of partnerships and deal volume tripling sequentially last quarter.
The once-in-a-generation opportunity
ServiceNow continues to grow quickly. Its subscription revenue climbed 19.5% in the fourth quarter, exceeding management's guidance. Remaining performance obligations grew even faster, up 22.5%, indicating a strong pipeline of growth.
Management's 2026 outlook may have disappointed investors, though. The company guided subscription revenue growth of 19.5% to 20% on a constant-currency basis. But if you remove the impact of its recent acquisitions, that number looks like a slight slowdown from 2025's growth, despite the growing remaining performance obligations. As such, that guidance may be conservative.
The stock's earnings per share should get a boost from the company's share repurchase plans. The board authorized a $5 billion buyback with a $2 billion accelerated share repurchase. With the stock's value falling close to $100 billion, that represents a significant chunk of shares outstanding.
Combined with its strong top-line growth and operating leverage as a software business, that should produce earnings per share growth in excess of revenue growth. But analysts are modeling just 18.6% earnings per share growth on average this year before accelerating to 20.4% next year.
Even if you think Wall Street has it right, the stock currently trades for just 26 times forward earnings. That makes it a very attractive price for the stock based on its near-term earnings potential. But if it becomes the center of agentic AI deployment with its AI Control Tower platform, earnings can continue to grow at that rate for years to come as enterprises expand their contracts with ServiceNow. It's no wonder McDermott is putting his money into the stock and sees great potential for the shares to appreciate from here.
