ServiceNow (NOW -1.10%) has been one of the hardest-hit large-cap software stocks in 2026. After setting a split-adjusted 52-week high of $211.48 last summer, shares of the enterprise workflow software company have fallen about 50%, to around $105 as of this writing. The cause wasn't the business, but rather a marketwide fear that artificial intelligence (AI) would disrupt the software industry, letting customers swap pricey subscriptions for AI agents that do the same work.
Lately, that fear has eased, and the stock has climbed nearly 30% off its low. So is this beaten-down software leader finally a buy, or has the bounce already run too far?
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An AI winner, not a victim
The bull case starts with how little the AI scare actually shows up in ServiceNow's results.
ServiceNow's first quarter of 2026 was strong by pretty much every measure. Subscription revenue rose 22% year over year (19% in constant currency) to $3.67 billion. And current remaining performance obligations (cRPO) -- contracted revenue the company expects to book over the next 12 months, and a useful read on near-term demand -- climbed 22.5% to $12.64 billion. Bigger deals, specifically, grew faster still: ServiceNow closed 16 transactions worth more than $5 million in net new annual contract value in the quarter, up nearly 80% from a year earlier.
More important for the AI debate, AI is landing as a tailwind, not a threat. Now Assist, ServiceNow's suite of generative AI features, is tracking toward about $1.5 billion in annual contract value for 2026 -- well above management's original $1 billion target. And customers spending more than $1 million a year on Now Assist grew more than 130% year over year.
"There has never been a tailwind for ServiceNow like AI," said CEO Bill McDermott on the company's first-quarter earnings call.
There's also a structural reason the AI-disruption worry may be overdone here. About half of ServiceNow's net new business now comes from pricing that isn't tied to user seats -- consumption-based models built around tokens, infrastructure, and connectors, McDermott said. The bear case assumes AI shrinks headcount, and with it the seats software vendors bill against. But when customers pay for how many workflows run on the platform, more automation can mean more usage, not less.
ServiceNow has leaned into that position. In January, it signed a multi-year agreement to make OpenAI's models a preferred option across the more than 80 billion workflows that run on its platform each year. The recent rebound in software stocks even has a tidy catalyst: in late June, the White House reportedly asked OpenAI to limit its most powerful new model to a small group of vetted partners, cooling fears that frontier AI would instantly commoditize enterprise software.
NYSE: NOW
Key Data Points
The valuation still isn't a bargain
Here's the harder part. Even after a sell-off this steep, ServiceNow doesn't look cheap. The stock trades at a forward price-to-earnings ratio of about 24 and a price-to-sales ratio of about 7. Both have compressed sharply -- the price-to-sales figure sat closer to 8 earlier this year, and far higher in years past. But neither is a bargain for a business whose growth, while strong, is gradually slowing from the high-20s rates of a few years ago.
Even more, the company's outlook looks good. For all of 2026, management guided for subscription revenue of about $15.75 billion, up more than 20%, and ServiceNow turns much of that into cash, posting a 44% free cash flow margin in the first quarter.
Still, this is a high-risk stock. The AI uncertainty that crushed shares this year hasn't been resolved so much as quieted, and another scare could send software names lower again.
So, with shares still down about 50% from their 52-week highs, a small position could make sense for investors who want exposure to a software company that is monetizing AI rather than being displaced by it. But I'd keep it modest. Shares aren't cheap enough yet to make this an easy call. And in a corner of the market moving this fast, paying up for even a strong business still carries plenty of risk.
