NOW · Q2 2026 · reported 2026-07-22 · revenue $3.99bn
Assessment
Q2 2026 gives the first stated level for ServiceNow's AI business in the coverage window: AI annual contract value crossed , with net new contract value up on the quarter, under a metric renamed from Now Assist to ServiceNow AI. Contract value is not recognized revenue, so the quarter's size stays the ledger's inference: , of subscription revenues, against for Q1. Revenue was , up . Price uplift is now given as rates, above for ProPlus and from for the AI-native tiers, and AI Control Tower as a count of more than live customers, which the ledger quotes and does not size.
The cost of serving AI enters management's words for the first time. Subscription gross margin guidance moved to from , attributed jointly to hyperscaler usage and customer AI adoption; applied to the quarter that reduction is . The filing shows a much larger fall in the reported margin, to from , most of it acquired-intangible amortization of after Armis closed for , part-funded by debt. Of the acquisition costs the ledger reads only Moveworks, at a quarter of amortization, as an AI channel.
The internal savings story thinned. Q1's productivity figure and its shares of cases resolved by agents are not repeated; the operating margin beat is attributed to revenue and timing of spend; operating expenses rose to of revenue from ; and what remains is a commitment to start 2027 with pre-acquisition headcount, beside severance costs of . The ledger carries its Q1 size, , and records the state change.
Steps from Q1: the AI contract value moves from directional to quantified, its size still inferred; tier uplift moves to quantified, while AI Control Tower, EmployeeWorks and the service desk saving stay directional and unsized on counts; inference cost moves from described to directional; security demand moves from exploratory to offensive as the acquired security products show sales; company-wide productivity moves from quantified to directional. The Moveworks acquisition cost does not step. Management still bounds seat and budget loss at nothing, with the renewal rate at . Every size in this exhibit is the ledger's inference.
Sized channels against the income statement, Q2 2026
10 of 13 channels sized
Each blue mark is one channel's dollars for the quarter; a bar is the range of an estimate. Grey marks are the company's reported lines. The distance between them is the point: how large the AI channel is next to the line it sits in.
Total revenuesreported line
$3.99bn
Total operating expensesreported line
$2.66bn
Sales and marketingreported line
$1.37bn
Total cost of revenuesreported line
$1.17bn
Research and developmentreported line
$915mn
General and administrativereported line
$369mn
ServiceNow AI (Now Assist) incremental contract valuerevenue in · our inference
Price uplift on Pro Plus and AI-native tiersrevenue in · our inference
Core workflow demand attributed to customers' AI adoptionrevenue in · our inference
Amortization and deal costs of the Moveworks acquisitionspend · our inference
Assist packs and usage-based AI consumptionrevenue in · our inference
Model inference and cloud cost of serving AI featuresspend · our inference
Operating cost avoided through the company's own AI (Now on Now)cost displaced · our inference
Security and risk demand attributed to AI agents and AI-enabled threatsrevenue in · our inference
Forward-deployed engineers and partner spend to get customers' AI into productionspend · our inference
Seats and budget lost to customers' AI and to model vendorstoll · our inference
$1mn$10mn$100mn$1bn$10bn
AI channel, dollars for the quarter low to high of an estimate reported lineLog scale: each gridline is ten times the one before.
New money and old money, Q2 2026
4 new7 expanded2 relabelled
Each channel is tagged once for whether its money existed before language models, from the company's annual report and call at the start of the period. A bar splits one flow's sized dollars by that tag. The incremental total is the part that would not be there without the models: a new channel counts in full, an expanded one only for what AI added, a relabelled one at zero.
Flow, sized total
Split by novelty
Incremental total
Paid for AI$60mn to $194mn sized
new $11mn to $110mnexpanded $49mn to $84mn
Incremental total $60mn to $194mnpoint $108mn
Cost displaced by AI$10mn to $125mn sized
expanded $10mn to $125mn
Incremental total $10mn to $125mnpoint $31mn
Revenue arriving through AI$216mn to $504mn sized
new not sizedexpanded $193mn to $250mnrelabelled $23mn to $254mn
Incremental total $193mn to $250mnpoint $220mn
Cost imposed, or revenue lost, by others’ AI$0 to $19mn sized
new $0 to $19mn
Incremental total $0 to $19mnpoint $3.9mn
The sized total counts every channel the company credits to AI, including relabelled money that existed before language models and the ledger's own estimates for it. The incremental total counts relabelled channels at zero. A flow is split by layer where its dollars sit at more than one: end use, compute sold to builders, and hardware. The same dollar can be a buyer's spend, a cloud's revenue and a chipmaker's revenue, so the layers are never added together.
Paid for AI3 channels · $60mn to $194mn sized · $60mn to $194mn incremental
cost of-revenue
Model inference and cloud cost of serving AI features
0.28% to 2.8% of the quarter’s revenue
Incremental total: counts in full.
Matched line moved : the whole line, not this channel.
our inferencedisclosure: direction only· motive: conduit· before LLMs: new
For the first time management ties a margin movement to AI: subscription gross margin guidance for the year is , against a quarter earlier, and both the call and the release attribute it to hyperscaler usage and accelerating customer AI adoption together (claims c63, c64, c65). Applied to the quarter, the reduction of is , shared between the two causes. The product chief describes mixing cheaper and frontier models to hold cost down (claim c67). The size here is the ledger's own, , an assumed cost-to-serve ratio on the AI revenue estimate. The counterparty is mixed: model providers, and the hyperscalers and data centers that supply the capacity.
Evidence: 10 quotes, 5 figures, 3 confounds, 3 from before coverage
What the company pays to run AI for its customers: third-party and its own models, and the cloud and data center capacity behind them. It sits in cost of subscription revenues, which the filing explains by headcount, data center capacity, third-party cloud commitments and amortization without splitting out AI. The payees are model providers and hyperscalers.
Why this motive
Carried, with the tell now stated: the product chief says pricing is by solution rather than by token, so model cost is recovered inside what customers pay (claims c68, c30). Durability belongs to the downstream motive.
Before LLMs: new
The anchor reports no model or inference bill. Cost of subscription revenues was in FY2024 at a gross profit percentage of , made up of data centers, public cloud, amortization and support staff; on the Q1 2024 call the COO said the cost of running the company's own smaller models was not high and sat inside the margin guidance.
“These expenses are comprised of data center capacity costs, which include colocation costs associated with our data centers as well as interconnectivity between data centers, depreciation related to our infrastructure hardware equipment dedicated for customer use, amortization of intangible assets, expenses associated with software, public cloud service costs, IT services and dedicated customer support, personnel-related costs directly associated with data center operations and customer support, including salaries, benefits, bonuses, stock-based compensation and allocated overhead.”
“As you have seen our gross margin guidance that Gina provided, that we feel comfortable with the cost to run these models because when the models are smaller, the cost to run them is not high.”
“Our ability to incorporate AI technology into our products depends on the availability and pricing of third-party hardware and software equipment and technical infrastructure.”
Cost of subscription revenues rose to and the subscription gross profit percentage fell to from . The filing names of third-party cloud provider expense and of amortization inside the increase (claim c69) and attributes none of it to AI.
line composition: The guidance cut is attributed jointly to customers moving to hyperscaler hosting and to AI adoption; no split is given.
acquisition: Acquired-intangible amortization added to cost of subscription revenues, which is why the reported margin fell much further than the guided one.
bundling: Inference runs on the same capacity and cloud contracts as the rest of the platform; the filing never names it.
Quotes
“Customers aren't paying us for tokens, they're paying for resolutions.”
“Yeah, both good reasons for a little bit of short-term pressure on margins. Notably, even though we had a little pressure on gross margin, we held the operating margin flat.”
“The same thing with respect to AI consumption. If you remember at FAD, I talked about a little bit of short-term pressure, but that we absolutely think that mid and longer term, we have some opportunity to continue to increase.”
“There is no reason for using some of the most expensive ones. We're very smart about how we use and leverage some of these emerging technologies, where you use open-weight versions, where do we have our own, where we have domain-specific ones, and where we use some of these higher-end frontier models.”
“We are not really worried about the margin impact as we keep on using more of these capabilities. Why? Because the way we price is really based on the solution versus individual tokens at the end of the day.”
“Expenses associated with our contractual commitments with third-party cloud service providers increased by $63 million and $104 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025.”
“We expect our subscription gross profit percentage to decrease for the year ending December 31, 2026 compared to the year ended December 31, 2025, primarily due to the ongoing growth of our third-party cloud services usage and incremental amortization of intangible assets acquired.”
“Cost of subscription revenues increased by $405 million and $664 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased headcount and increased costs to support the growth of our subscription offerings including costs to support customers in regulated markets.”
Q2 2026direction only · our inference · conduit · $11mn to $110mn
other
Amortization and deal costs of the Moveworks acquisition
1% to 1.3% of the quarter’s revenue
Incremental total: counts in full.
Matched line moved : the whole line, not this channel.
our inferencedisclosure: quantified· motive: offensive· before LLMs: expanded
The channel is the cost of the Moveworks acquisition alone. The filing repeats its purchase accounting unchanged: acquired intangibles of of developed technology, of customer relationships, of order backlog and of brand (claim c40), which straight-line over their lives is a quarter. Amortization of purchased intangibles in total rose to from because Armis closed on 2026-04-20; that increase is not credited to AI. The size here is the ledger's own, : the Moveworks amortization plus an assumed small share of business combination costs of . Funding is carried as operating cash flow; the debt raised in the quarter paid for Armis.
Evidence: 12 quotes, 9 figures, 4 confounds, 2 from before coverage
The income-statement cost of buying Moveworks, the conversational AI company acquired in December 2025 whose product is sold as EmployeeWorks: amortization of its acquired intangibles and its share of business combination costs. The purchase price is outside the income statement. The filing reports amortization of all acquisitions as one line and attributes it to acquisitions, not to AI. Veza and Armis, security companies acquired in 2026, are outside this channel and are read as confounds.
Why this motive
Carried and reinforced: EmployeeWorks deal volume grew on the quarter and the Moveworks product was folded into Otto (claims c41, c10), a separately priced AI product with measured movement.
Before LLMs: expanded
Acquisitions and their amortization predate Moveworks: amortization of purchased intangibles was in FY2024, and the anchor records the 2023 purchase of G2K, described as an artificial intelligence powered platform, for . No Moveworks cost was in this income statement before the acquisition closed on 2025-12-15 for . The size is the change AI made, not the whole line.
“On July 17, 2023, we acquired all outstanding shares of G2K Group GmbH, an artificial intelligence powered platform, for $465 million in a cash transaction.”
“We have acquired and invested in companies and technologies as part of our business strategy and will continue to evaluate and enter into potential strategic transactions, including, among other things, acquisitions of or investments in businesses, technologies, services, products and other assets.”
Amortization of purchased intangibles rose to , which the filing attributes to acquisitions (claim c72). The computed Moveworks amount, , is a small part of that; Armis and Veza account for most of it.
2026-CQ2: 2025-CQ2: 2026-CQ2: 2026-CQ2:
What else could explain it
acquisition: Armis, bought for and part-funded by a term loan repaid through a notes issue, and Veza are security companies. Their amortization, deal costs and financing sit in the same lines and nothing of them is credited to AI here (claims c73, c74, c62).
line composition: Amortization of purchased intangibles of holds every acquisition; the Moveworks part is computed from the purchase accounting, not reported.
one time item: Business combination costs of against and outside services of are largely Armis; only an assumed small share is taken as Moveworks.
other: Straight-line amortization over the stated weighted-average lives is assumed.
Quotes
“On December 15, 2025, we acquired all outstanding shares of Moveworks, Inc. ("Moveworks"), a privately held company that provides enterprise search and front-end virtual agent technology.”
“EmployeeWorks, our AI front door for the enterprise workforce, continued to build strong momentum with deal volume growing over 150% quarter-over-quarter. Another good example of our acquisitions amplifying the core.”
“ServiceNow Otto launched as a new unified AI experience that combines the intelligence of Now Assist, Moveworks, and AI Experience to complete work across every department and system.”
“In addition, amortization of intangible assets increased by $153 million and $194 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025 as a result of acquisitions.”
“We expect our subscription gross profit percentage to decrease for the year ending December 31, 2026 compared to the year ended December 31, 2025, primarily due to the ongoing growth of our third-party cloud services usage and incremental amortization of intangible assets acquired.”
“General and administrative expenses ("G&A") increased by $98 million and $157 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to an increase in outside services of $61 million and $96 million, largely related to recent acquisitions.”
“On April 20, 2026, we acquired all outstanding shares of Armis Security Ltd. ("Armis"), a cyber-exposure management and cyber-physical security solutions provider, for preliminary purchase price consideration of approximately $7.6 billion, settled in cash.”
“In April 2026, we borrowed an aggregate principal amount of $4.0 billion under a senior unsecured term loan (the "Term Loan") to fund a portion of the cash consideration for our acquisition of Armis. In May 2026, we repaid the outstanding balance on the Term Loan primarily through issuance of the Notes.”
“The acquisition is intended to expand our security workflow offerings and advance AI-native, proactive cybersecurity and vulnerability response across all connected devices.”
“When I think about what we're going to do with the new businesses that we took advantage of at the end of last year and took some criticism for, it was because we believed in our strategy.”
“We did that with EmployeeWorks, with Moveworks, and now we did that with Armis and Yevgeniy running our security business as a corporation within the corporation, and that's inclusive of Veza.”
Forward-deployed engineers and partner spend to get customers' AI into production
0.2% to 0.81% of the quarter’s revenue
Incremental total: counts in full.
Matched line moved : the whole line, not this channel.
our inferencedisclosure: described· motive: exploratory· before LLMs: expanded
The release describes a forward deployed engineering program with a services partner to scale AI from pilots to enterprise-wide deployments, and the CEO mentions the company's own AI-native forward deployed engineers (claims c77, c78). Professional services moved to a gross loss of , against a small gross profit a year earlier, on personnel and partner ecosystem spend (claim c79). The size here is the ledger's own, , an assumed share of the loss beyond the prior-year margin. The counterparty is mixed: the company's own forward deployed engineers and customer excellence staff, and contracted services partners.
Evidence: 4 quotes, 2 figures, 2 confounds, 4 from before coverage
What the company spends so that customers deploy the AI they have bought: forward deployed engineers, a customer excellence group and partner ecosystem spend. It shows in the professional services gross loss, which the filing attributes to personnel and partner spend for customer value realization. The payees are the company's own staff and contracted partners.
Why this motive
Carried: the spend is described as scaling customers' AI from pilots to deployment (claim c77), ahead of the consumption it is meant to bring.
Before LLMs: expanded
Professional services ran at a small gross loss before the forward-deployed program: a gross profit percentage of in FY2024, with partner-contracted cost at of services revenue. The anchor 10-K already attributed the cost increase to partner ecosystem investments for customer value realization and expected the loss percentage to widen in 2025, without naming AI. The size is the change AI made, not the whole line.
“Number two, I absolutely do not expect that this requires a heavy system integrator types of implementation that is drawn out in the old machine learning technologies where you create a model, refine a model, and you need data scientists, machine learning engineers, and so on.”
“Cost of professional services and other revenues increased by $30 million for the year ended December 31, 2024 as compared to the prior year, primarily due to an increase in partner ecosystem investments to further accelerate customer value realization, partially offset by a decrease in fixed personnel-related costs, including stock-based compensation, due to decreased internal headcount.”
“We expect our professional services and other gross loss percentage to increase for the year ending December 31, 2025 compared to the year ended December 31, 2024.”
“One example is our investment in Plat4mation, a global IT consultancy and leading ServiceNow implementation partner to enhance expertise in generative AI-enabled technology.”
Professional services and other gross loss · 2026-CQ2
Professional services and other gross loss, prior-year quarter (negative: a gross profit) · 2025-CQ2
Reported line it is matched to
Professional services cost rose to on revenue of ; the gross loss is beyond what the prior-year margin would have given. The filing attributes it to personnel and partner spend for customer value realization (claim c79).
line composition: Professional services cost covers every implementation, including those for the acquired security products.
acquisition: Acquired services staff are inside the line.
Quotes
“The companies also introduced a forward deployed engineering program to help organizations scale AI from pilot projects to enterprise-wide deployments.”
“Cost of professional services and other revenues increased by $40 million and $70 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily driven by increased personnel-related costs and an increase in partner ecosystem spend to further help accelerate customer value realization.”
“We expect our professional services and other gross loss percentage to increase for the year ending December 31, 2026 compared to the year ended December 31, 2025 as we continue to accelerate customer value realization and support our customers in gaining the maximum value of our latest offerings.”
Cost displaced by AI2 channels · $10mn to $125mn sized · $10mn to $125mn incremental · 1 not sized
back office · cheap to verify
Operating cost avoided through the company's own AI (Now on Now)
0.26% to 3.1% of the quarter’s revenue
Incremental total: counts in full.
Matched line moved : the whole line, not this channel.
our inferencedisclosure: direction only· motive: efficiency· before LLMs: expanded
The productivity figure of Q1 is not repeated. What remains is a commitment: to start 2027 with the headcount the company had before the acquisitions (claim c81). The operating margin beat of is attributed to revenue outperformance and timing of marketing spend (claim c82), where Q1's was attributed to AI efficiencies. Operating expenses were of revenue against , with personnel cost up on increased headcount and severance costs of . The size here is the ledger's own, , carrying the Q1 figure through the fixed undated band, because nothing in this quarter's sources replaces it.
Evidence: 5 quotes, 7 figures, 4 confounds, 2 from before coverage
Cost the company says it avoids by running its own AI products internally across IT, customer support, HR and other functions, which management expresses as captured productivity, flat headcount and operating margin. The displaced cost would sit across operating expenses and cost of subscription revenues, where the filing reports headcount rising.
Why this motive
Carried, on a weaker basis: the CEO repeats the flat-headcount commitment (claim c81), the headcount tell, but the CFO attributes the quarter's margin beat to revenue and timing of spend, not to AI (claim c82), and says sales hiring continues (claim c83). No new dollar is stated.
Before LLMs: expanded
The company ran its own operations on its platform at the anchor and already described internal generative AI use: on the Q1 2024 call engineers accepted of generated code and the CFO listed operating expense efficiencies among the reasons for the margin beat, with no dollar value. Operating expenses were in Q1 2024, of revenue. The size is the change AI made, not the whole line.
“GenAI deflection rates have doubled for both our employees and customers, and they are improving each and every month. Software engineers are accepting 48% of text-to-code generation.”
“Non-GAAP operating margin was over 30%, approximately 150 basis points above our guidance, driven by the timing of marketing spend, OpEx efficiencies, and our top-line outperformance.”
Non-GAAP operating margin above guidance, percentage points, attributed by the CFO to revenue outperformance and timing of spend · 2026-CQ2
Total operating expenses as a share of revenue · 2026-CQ2
Total operating expenses as a share of revenue, prior-year quarter · 2025-CQ2
Sales and marketing personnel-related costs, year-over-year increase on increased headcount · 2026-CQ2
Severance costs · 2026-CQ2
Severance costs, prior-year quarter · 2025-CQ2
Reported line it is matched to
Operating expenses of are above what the prior-year share of revenue would have given, where Q1 was below. The line no longer moves the way the claim predicts; acquisitions and severance are in it.
acquisition: Acquired staff, amortization and transaction costs are in operating expenses and hide any saving in the ratios.
other: The filing attributes the sales and marketing increase to increased headcount, with personnel cost up (claim c85); an analyst noted sales headcount rising.
transformation program: Severance costs of against have no stated cause; a flat headcount after acquisitions implies reductions elsewhere.
seasonality: The annual customer conference falls in the quarter and raises marketing cost.
Quotes
“We will complete this cycle of 2026 and start 2027 with the exact same headcount before we did the acquisitions. You're going to see the operating margins and the free cash flow margins of this corporation scale.”
“Turning to profitability, non-GAAP operating margin was 29.5%, 300 basis points above our guidance, driven by the revenue outperformance and timing of spend, primarily in marketing.”
“Sales and marketing expenses increased by $244 million and $406 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased headcount resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of $138 million and $211 million”
Q2 2026direction only · our inference · efficiency · $10mn to $125mn
customer support · cheap to verify
Employee IT and customer support cases resolved by the company's own AI specialists
Not sized
The quarter's only measure is a count of AI specialists deployed inside the company, beside level-one support (claim c14); no share of cases or cost is given, and the former estimate, now-2026-cq2-f85, carried the Q1 share of cases resolved. A count sizes nothing and the Q1 share is itself a share by count, so the channel reads directional and gets no ballpark (the methodology's count-only rule, rules sweep of 2026-10-06).
described, no sizedisclosure: direction only· motive: efficiency· before LLMs: expanded
The call says level-one support and other AI specialists are deployed inside the company (claim c14) and gives no share of cases resolved, where Q1 gave . Personnel cost in cost of subscription revenues rose on increased headcount (claim c71). The count of specialists is quoted and the reading is unsized; any saving sits inside the company-wide figure.
Evidence: 2 quotes, 2 figures, 2 confounds, 3 from before coverage
Level-one case handling the company no longer staffs because its own AI specialists resolve employee IT requests and customer support cases. The displaced labor sits in cost of subscription revenues, which holds customer support staff, and in internal IT. It is part of the company-wide productivity management reports.
Why this motive
Carried: the product chief says level-one support and other AI specialists are deployed inside the company (claim c14), with no share of cases or cost this quarter. The Q1 basis, shares of cases resolved without a person, stands unrepeated.
Before LLMs: expanded
Customer support staff sit in cost of subscription revenues, in FY2024, beside a self-service support portal, and chatbot deflection predates LLMs. On the Q1 2024 call management said generative AI deflection rates had doubled for employees and customers, without giving a share of cases. The size is the change AI made, not the whole line.
“GenAI deflection rates have doubled for both our employees and customers, and they are improving each and every month. Software engineers are accepting 48% of text-to-code generation.”
“These expenses are comprised of data center capacity costs, which include colocation costs associated with our data centers as well as interconnectivity between data centers, depreciation related to our infrastructure hardware equipment dedicated for customer use, amortization of intangible assets, expenses associated with software, public cloud service costs, IT services and dedicated customer support, personnel-related costs directly associated with data center operations and customer support, including salaries, benefits, bonuses, stock-based compensation and allocated overhead.”
“We offer our customers standard and enhanced support, from technical resources located around the globe, on a subscription-based model, as well as self-service technical support through our support portal, which provides access to documentation, knowledge-based articles, online training, online support forums and online case creation.”
line composition: Cost of subscription revenues holds data centers, cloud, depreciation and amortization beside support staff; the support share is assumed.
acquisition: Armis support staff joined the line in the quarter.
Quotes
“We have deployed level 1 support AI specialists, as well as 20 other AI specialists inside ServiceNow, and we're starting to do that with our customers. Today, our 40+ customers are using it already and getting a lot of good benefits.”
“Cost of subscription revenues increased by $405 million and $664 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased headcount and increased costs to support the growth of our subscription offerings including costs to support customers in regulated markets.”
Q1 2026direction only · described, no size · efficiency
Q2 2026direction only · described, no size · efficiency
Revenue arriving through AI7 channels · $216mn to $504mn sized · $193mn to $250mn incremental · 2 not sized
product revenue · cheap to verify
ServiceNow AI (Now Assist) incremental contract value
4.8% to 6.3% of the quarter’s revenue
Incremental total: counts in full.
our inferencedisclosure: quantified· motive: offensive· before LLMs: expanded
Management states a level for the first time in the coverage window: ServiceNow AI annual contract value crossed in the quarter (claims c2, c1, c7), with net new contract value up on the prior quarter and the year-end target of kept. A level under contract is not revenue recognized, so the size stays the ledger's own: , of subscription revenues, one quarter of the stated level scaled by an assumed recognition share, against for Q1 on the same basis. The stated level is a floor, and the metric is now named ServiceNow AI where Q1 said Now Assist.
Evidence: 26 quotes, 10 figures, 4 confounds, 7 from before coverage
Management's headline AI metric: the annual contract value of the incremental contribution of AI capabilities, first reported as Now Assist and from Q2 2026 as ServiceNow AI. It counts the uplift on AI tiers and the assists customers purchase, and it is contract value at a date, not revenue recognized. The work the products automate is service desk and case handling, which is cheap to check.
Why this motive
A separately priced AI offering with a stated level and measured movement: contract value above , net new contract value up on the quarter, large multi-product deals at a multiple of on the prior year (claims c2, c1). The product chief describes the customer's reason as labor cost the company can charge against (claim c29), the customer's efficiency motive; equal durability.
Before LLMs: expanded
At the anchor this money was the Now Assist add-on, offered for certain products at an additional cost and packaged as the Pro Plus tiers launched in September 2023 above the Pro tiers of 2018; the CFO called it a small dollar amount that had started from nothing and gave no level. The products it sits on already carried a chatbot and predictive intelligence, inside subscription revenues of in FY2024. The size is the change AI made, not the whole line.
“As an AI platform for business transformation, the Now Platform has embedded Now Assist, our AI solution available for certain products at an additional cost, to help enhance user productivity and efficiency, thereby accelerating our customers’ return on investment in the Now Platform.”
“Our IT Service Management (“ITSM”) product is capable of, among others, predictive intelligence, incident management and response, routine task and request automation, performance analytics and process optimization. It also provides a Virtual Agent feature, a chatbot that can answer common questions.”
“So when we launch Pro in 2018 September and we launch Pro Plus in 2023 September, as Bill outlined in his comments, the Pro Plus uptake by our customers is at a higher pace than Pro uptake was across not only just ITSM but also CSM and also HR, which are three big product lines for ServiceNow.”
“Yes, the adoption curve is stronger than we've seen in any new product category launch, but that's starting from zero, right? So it's a small dollar at this point in time, but the speed at which it's going to grow to be a really meaningful contributor is faster than anything we've seen.”
“Number two, I absolutely do not expect that this requires a heavy system integrator types of implementation that is drawn out in the old machine learning technologies where you create a model, refine a model, and you need data scientists, machine learning engineers, and so on.”
“Now Assist for HRSD, our AI solution, enables employees to quickly obtain answers to common HR questions and take action directly through Virtual Agent, while also reducing redundant manual tasks for service agents, thereby helping HR leaders drive productivity and operational efficiency.”
ServiceNow AI annual contract value, the level management says was crossed in the quarter · as-of 2026-06-30
ServiceNow AI net new annual contract value, quarter-over-quarter growth (over) · 2026-CQ2
ServiceNow AI revenue estimate as a share of subscription revenues · 2026-CQ2
AI contract value target for the end of 2026 · as-of 2026-12-31
Target share of annual contract value to come from AI by 2030 · as-of 2030-12-31
Deals including five or more ServiceNow AI products, multiple of the prior-year quarter · 2026-CQ2
Customers with agentic AI in production, multiple over the last nine months · 2026-CQ2
Deal volume among first-time agentic AI buyers, year-over-year growth (over) · 2026-CQ2
Customers using the level-one AI specialist (more than) · 2026-CQ2
Share of service requests the level-one specialist closes without human interaction, low end of the stated range · 2026-CQ2
What else could explain it
relabel: The metric reported as Now Assist in Q1 is reported as ServiceNow AI in Q2; the CFO said in Q1 that the methodology was unchanged, and the Q2 sources do not restate the definition.
acquisition: Otto, launched in the quarter, combines Now Assist with the acquired Moveworks product (claim c10); the sources do not say whether acquired contract value is inside the figure.
bundling: AI is in every tier since April; the incremental AI contribution that the metric counts is an allocation management makes.
other: The recognition share rests on the ledger's own estimate of the level at the end of Q1; management has not given one.
Quotes
“ServiceNow AI ACV exceeded expectations again, surpassing $1 billion, keeping us on track to beat our target of one and a half billion ACV by the end of 2026.”
“ServiceNow AI continued to outperform expectations in Q2, with ACV crossing over $1 billion and net new ACV growth accelerating sequentially, growing over 40% quarter-over-quarter. Deals including five or more ServiceNow AI products grew 5.5x year-over-year, which drove a tripling of million-dollar-plus deals.”
“In addition, the number of customers with agentic AI in production has increased 9x over the last nine months, a leading indicator for the future consumption opportunity. While still early, we're already tracking ahead of our target for AI to reach 30% of ACV by 2030.”
“AI net new ACV growth continues to outpace expectations, our AI Control Tower is supercharging our Security and Risk business, and ITOM is seeing strong demand tailwinds for the CMDB to serve as an essential governance and data foundation.”
“ServiceNow Otto launched as a new unified AI experience that combines the intelligence of Now Assist, Moveworks, and AI Experience to complete work across every department and system.”
“ServiceNow hosted its annual Financial Analyst Day on May 4, where the company outlined long-term targets including $30 billion+ in subscription revenues, 30% of ACV to come from AI”
“We have deployed level 1 support AI specialists, as well as 20 other AI specialists inside ServiceNow, and we're starting to do that with our customers. Today, our 40+ customers are using it already and getting a lot of good benefits.”
“The City of Raleigh became the first local government to deploy ServiceNow's L1 AI specialist in production with no in-house AI engineering bench behind it.”
“A large airline has gone all in running their customer service voice calls on ServiceNow's voice AI CRM agents. This is live in production and handling 5 million annual voice calls in year one alone.”
“For example, we have a big announcement coming very shortly, a business model evolution that expands our TAM with AI-native products. This new offering will be a conversational service desk experience, no tickets, and AI-coded automation.”
“As Bill noted, our new AI-native SKUs are making our agentic solutions more accessible across the customer base, as evidenced by deal volume amongst first-time ServiceNow agentic AI buyers growing over 45% year-over-year.”
“Usage goes up considerably because you do burn down a lot of analysis because you are doing full end-to-end task resolution here, that's really where the opportunity for us exists. It's also labor arbitrage. We also get to monetize the labor cost, which employers have to pay the employees.”
“AI net new ACV growth continues to outpace expectations. Our AI Control Tower is supercharging our security and risk business. ITOM is seeing strong demand tailwinds for the CMDB to serve as an essential governance and data foundation.”
“Nearly all 50 U.S. states are using the ServiceNow AI Platform to deliver better citizen services and modernized operations, with state agencies achieving measurable outcomes including 66% service desk cost reduction, unified technology visibility, strengthened cybersecurity, and faster policy implementation.”
“In my conversations with CFOs, the question has become simple: Where is the return? They've watched budgets burn on pilots that demo beautifully and never touch the P&L.”
3.6% to 5.1% of the quarter’s revenue; overlaps another channel, not added into totals
our inferencedisclosure: quantified· motive: offensive· before LLMs: expanded
The CFO now gives rates: the ProPlus tiers carry an uplift above and upgrades to the AI-native tiers one starting at , with deal volume among first-time AI buyers up (claims c23, c22, c21). A rate has no dollar size without the base of contracts it applies to, which is not disclosed. The size here is the ledger's own, , an assumed share of the AI revenue estimate; it sits inside that figure.
Evidence: 4 quotes, 3 figures, 2 confounds, 5 from before coverage
The seat-based part of AI revenue: the higher subscription price of tiers that include AI, first Pro Plus over Pro and, from April 2026, AI-native packaging across every tier. It sits inside the AI contract value metric.
Why this motive
A disclosed price uplift on AI tiers, above on ProPlus and from on the AI-native tiers (claim c23): a measured movement in price attributed to AI.
Before LLMs: expanded
Tiered upsell predates LLMs: the Pro tier launched in September 2018 and the COO described Pro and Enterprise as the larger, higher-priced packages, with Pro Plus of September 2023 the next rung, offered at an additional cost. No line reports the uplift; the per-user products it applies to were of revenue in FY2024. The size is the change AI made, not the whole line.
“As an AI platform for business transformation, the Now Platform has embedded Now Assist, our AI solution available for certain products at an additional cost, to help enhance user productivity and efficiency, thereby accelerating our customers’ return on investment in the Now Platform.”
“Our IT Service Management (“ITSM”) product is capable of, among others, predictive intelligence, incident management and response, routine task and request automation, performance analytics and process optimization. It also provides a Virtual Agent feature, a chatbot that can answer common questions.”
“So when we launch Pro in 2018 September and we launch Pro Plus in 2023 September, as Bill outlined in his comments, the Pro Plus uptake by our customers is at a higher pace than Pro uptake was across not only just ITSM but also CSM and also HR, which are three big product lines for ServiceNow.”
“With respect to discounting versus initial expectations, we feel really good about the realized pricing, and it has been very much in line with our initial expectations.”
Price uplift on upgrades to AI-native tiers, low end of the stated range · 2026-CQ2
Deal volume among first-time agentic AI buyers, year-over-year growth (over) · 2026-CQ2
What else could explain it
bundling: The uplift is the price difference between packages; what part of a tier price is AI is management's allocation.
mix shift: The AI-native tiers carry a lower uplift than ProPlus; a shift toward them raises reach and lowers the average uplift.
Quotes
“As Bill noted, our new AI-native SKUs are making our agentic solutions more accessible across the customer base, as evidenced by deal volume amongst first-time ServiceNow agentic AI buyers growing over 45% year-over-year.”
“What's more, upgrades to our new AI-native SKUs are driving price uplift in line with the 20%-30% framework that we laid out at our Financial Analyst Day.”
“Our pricing uplift for our ProPlus SKUs continues to be above 30%, and for our new AI native SKUs that we just launched, those uplifts are in line with what we talked about at FAD at being 20%-30%.”
0.44% to 1.9% of the quarter’s revenue; overlaps another channel, not added into totals
our inferencedisclosure: bounded· motive: offensive· before LLMs: new
The CEO repeats that of net new business is non-seat-based (claim c25), without the Q1 list of what that includes. The CFO calls the rise in customers with agentic AI in production, a multiple of over nine months, a leading indicator for future consumption and ties assists to the long-term target (claims c3, c28). No consumption dollar is given. The size here is the ledger's own, , an assumed minority share of the AI revenue estimate; it sits inside that figure.
Evidence: 9 quotes, 2 figures, 2 confounds, 3 from before coverage
The metered part of AI revenue: assists consumed against a tier entitlement and bought again as assist packs, under the hybrid pricing model. Management reports the share of net new business that is non-seat-based, a wider category that also holds infrastructure, hardware and connectors. It sits inside the AI contract value metric.
Why this motive
Assists are metered and tied by management to labor cost it can charge against (claims c29, c28), a separately priced AI unit. The CFO still calls consumption a future opportunity (claim c3), which would read exploratory; the pricing is in force, so offensive is kept and the conflict noted.
Before LLMs: new
The anchor shows no metered AI charge: agentic AI was a feature inside the per-user Now Assist add-on, and the 10-K names consumption-based pricing only as a change the company might make. Pricing by subscription unit did exist for the ITOM products, in FY2024, which is why the non-seat share management reports is wider than assists.
“Our digital workflow products include most of our product offerings and are generally priced on a per user basis. Our remaining product offerings, primarily comprised of our IT Operations Management (“ITOM”) products, are predominantly priced on a subscription unit basis.”
“Further, in response to evolving customer needs, we may make significant investments in changing how we offer our products or services, such as bundling offerings or shifting to consumption-based pricing for support services or how our services are delivered or priced.”
Share of net new business that is non-seat-based · 2026-CQ2
Customers with agentic AI in production, multiple over the last nine months · 2026-CQ2
What else could explain it
line composition: Non-seat-based business includes more than AI assists; Q1 listed infrastructure, hardware and connectors.
bundling: Each tier carries an assist entitlement, so consumption is charged only beyond it.
Quotes
“In addition, the number of customers with agentic AI in production has increased 9x over the last nine months, a leading indicator for the future consumption opportunity. While still early, we're already tracking ahead of our target for AI to reach 30% of ACV by 2030.”
“Are we worried about seat compression? Not at all. Our addressable user base is growing and 50%, five zero, of our net new business is already non-seat based.”
“We keep seat-based pricing because customers prefer it for predictability, particularly now, where a lot of pricing out there has been less than predictable. Are customers going to build their own? I've yet to meet a customer who would even consider it.”
“Hybrid pricing structure, which we introduced, where it's combination of license and usage directly applies to giving the customer predictability and flexibility. When you use more, that means you are getting good outcomes, otherwise you will not use more.”
“These L1 autonomous agents, if you think about the complex tasks that they're able to execute, really drives more and more assists. As we think about compounding effect of consumption, this is a great example of how we will reach our 30%.”
“Usage goes up considerably because you do burn down a lot of analysis because you are doing full end-to-end task resolution here, that's really where the opportunity for us exists. It's also labor arbitrage. We also get to monetize the labor cost, which employers have to pay the employees.”
AI Control Tower: governance of customers' AI agents
Not sized
The only measure is a count of customers live, more than (claim c33), with no price, contract value or revenue; a count of customers sizes nothing, so the channel reads directional and gets no ballpark (the methodology's count-only rule, rules sweep of 2026-10-06). The former estimate, now-2026-cq2-f77, was the count times an assumed contract value.
described, no sizedisclosure: direction only· motive: offensive· before LLMs: new
The product chief gives a count: more than customers live within six months of launch (claim c33). The Q1 measure, average deal size, is not repeated, and no price or revenue is given. The reading is unsized: a count of customers is quoted and not converted to dollars.
Evidence: 17 quotes, 1 figure, 3 confounds, 3 from before coverage
A product sold to discover, govern and measure the AI agents and models a customer runs, from any vendor. Management reports deal sizes and customer counts, not revenue, and the sources do not say whether it is counted inside the AI contract value metric.
Why this motive
A separately sold product with a stated customer count, more than live (claim c33), and credited by the CFO with lifting the security business (claim c38).
Before LLMs: new
The anchor has no product for governing the AI agents a customer runs. It shows the foundation the product builds on: the ITOM configuration record, asset management, the risk and compliance products, and AI governance tools built into the platform for models used on it, with no separate price.
“Our Integrated Risk Management (“IRM”) product capabilities include policy and compliance management, regulatory change management, compliance case management, IT and operational risk management and audit management.”
“We also provide AI governance tools, including built-in monitoring and guardrails, dataset creation management and benchmarking capabilities, and visibility into adoption, usage and performance analytics.”
“It also maintains a single data record for all IT configurable items, allowing our customers to exercise control over their on-premises or cloud-based infrastructures, while orchestrating key processes and tasks.”
“AI net new ACV growth continues to outpace expectations, our AI Control Tower is supercharging our Security and Risk business, and ITOM is seeing strong demand tailwinds for the CMDB to serve as an essential governance and data foundation.”
“AI Control Tower expanded with new discovery, observation, governance, security, and measurement capabilities that give enterprises control over every AI system, agent, and workflow regardless of where it runs.”
“ServiceNow and Microsoft extended AI Control Tower governance across the Microsoft Agent 365 ecosystem and made ServiceNow AI specialists available through the Microsoft marketplace.”
“AI net new ACV growth continues to outpace expectations. Our AI Control Tower is supercharging our security and risk business. ITOM is seeing strong demand tailwinds for the CMDB to serve as an essential governance and data foundation.”
“Our customers want every AI in the enterprise to be visible, governed, and secured in one command center, native or third party, they don't want any blind spots.”
“Using the right technology for the right job, and then managing the budgets, including all the tokens and the security of this, has become pretty important.”
“ServiceNow and NVIDIA deepened their partnership to extend agentic AI governance from desktops to data centers, introducing Project Arc, an enterprise autonomous desktop agent secured by NVIDIA OpenShell, and completed the integration of AI Control Tower into the NVIDIA Enterprise AI Factory Validated Design.”
“We have tremendous amount of proof points of where we are able to now really help customers to manage their whole huge AI landscape and really have control and a peace of mind.”
“They're capturing millions in annualized savings by consolidating vendor risk governance and fraud detection across 1,000 suppliers. They're using ServiceNow's AI Control Tower.”
Q1 2026direction only · described, no size · offensive
Q2 2026direction only · described, no size · offensive
product revenue · cheap to verify
EmployeeWorks: Moveworks conversational AI and enterprise search
Not sized
The only measures are a deal-volume growth rate, on the quarter (claim c41), and a count of large deals for the whole core business workflow area, (claim c42); no revenue or recurring revenue level is given. Deal counts and their growth size nothing, so the channel reads directional and gets no ballpark (the methodology's count-only rule, rules sweep of 2026-10-06). The former estimate, now-2026-cq2-f78, was one quarter of an assumed recurring revenue level built up from the Q1 assumption.
described, no sizedisclosure: direction only· motive: offensive· before LLMs: expanded
Deal volume grew on the prior quarter and the workflow area it sits in had deals above the million-dollar threshold, which the CFO attributes to EmployeeWorks demand (claims c41, c42). The Moveworks product is also folded into Otto (claim c10). No revenue level is given, and the reading is unsized: the deal growth and the deal count are quoted.
Evidence: 5 quotes, 2 figures, 3 confounds, 2 from before coverage
Revenue from the conversational assistant and enterprise search acquired with Moveworks in December 2025 and sold from February 2026 as EmployeeWorks, merged with the employee experience products. It answers and completes employee service requests, work that is cheap to check. Management reports deal counts and growth multiples, not revenue.
Why this motive
A separately priced AI product with measured deal growth, on the quarter (claim c41).
Before LLMs: expanded
At the anchor the company offered an employee portal in HR Service Delivery and a Virtual Agent chatbot, with Now Assist adding conversational answers; no revenue is given for them. Moveworks was an independent company then, outside this income statement, and was acquired on 2025-12-15 for ; no stored source gives its revenue before the acquisition. The size is the whole of an activity that existed before.
“Our HR Service Delivery (“HRSD”) product helps organizations transform the employee experience by providing a portal that makes it easy for employees to conveniently access answers, actions and guidance.”
“Now Assist for HRSD, our AI solution, enables employees to quickly obtain answers to common HR questions and take action directly through Virtual Agent, while also reducing redundant manual tasks for service agents, thereby helping HR leaders drive productivity and operational efficiency.”
Core business workflow deals over $1 million, driven by EmployeeWorks demand · 2026-CQ2
What else could explain it
acquisition: Most of the base was acquired in December 2025; growth multiples are on a small combined base.
bundling: The large-deal count is for the whole core business workflow area, and the product is now also part of Otto.
other: The sources do not say whether EmployeeWorks is counted inside the AI contract value metric; it is treated as overlapping.
Quotes
“ServiceNow Otto launched as a new unified AI experience that combines the intelligence of Now Assist, Moveworks, and AI Experience to complete work across every department and system.”
“EmployeeWorks, our AI front door for the enterprise workforce, continued to build strong momentum with deal volume growing over 150% quarter-over-quarter. Another good example of our acquisitions amplifying the core.”
“As Fortune 500 customers adopt EmployeeWorks, we're seeing it pull through broader HR and employee experience opportunities, a similar pattern to what's happening in the CRM business.”
“This combines Moveworks conversational AI with ServiceNow workflows to create a single place to search, self-serve, and take action across HR, IT, and all workplace services.”
Q1 2026direction only · described, no size · offensive
Q2 2026direction only · described, no size · offensive
customer cohort
Core workflow demand attributed to customers' AI adoption
0.36% to 4.5% of the quarter’s revenue
Incremental total: counts at zero.
Matched line moved : the whole line, not this channel.
our inferencedisclosure: described· motive: exploratory· before LLMs: relabelled
The CEO says customers' deployment of AI has already inflected the company's growth and that the influx of AI creates more work for IT (claims c45, c46); the CFO ties AI attach to the data products, with deal volume up for the database product (claim c47). Subscription revenues rose , and the release attributes the beat to net new contract value and on-premise mix (claim c52). The size here is the ledger's own, , an assumed share of that increase less Armis.
Evidence: 14 quotes, 2 figures, 4 confounds, 6 from before coverage
The part of demand for the non-AI products that management attributes to customers adopting AI: more code and more agents producing more IT tickets, the asset database as a governance foundation, the database and data products pulled by AI projects, and CRM replacement pitched as AI-native. The dollars sit inside subscription revenues and no figure separates them.
Why this motive
Carried from Q1 (exploratory): management again names AI as the reason core demand is rising (claims c45, c46) and attaches no price, attach rate or figure to it; the filing names no driver, and the release credits the beat to contract value and on-premise mix without contradicting the AI claim.
Before LLMs: relabelled
The same products were on offer at the anchor: IT service management with a chatbot and predictive intelligence, the ITOM configuration record, customer service and sales and order management. Subscription revenues were in FY2024, up , and up in Q1 2024, when the CEO already credited the AI platform position for the strength of each business; the filing gave the driver as purchases by new and existing customers. The database product whose deal volume management cites is not named in the anchor.
“Our IT Service Management (“ITSM”) product is capable of, among others, predictive intelligence, incident management and response, routine task and request automation, performance analytics and process optimization. It also provides a Virtual Agent feature, a chatbot that can answer common questions.”
“ServiceNow is strengthening its position as the AI platform for business transformation. This is fueling strong performances for each of our key businesses. ITSM and ITOM were each in 16 of the top 20 deals. Security and risk combined were in 11 of the top 20.”
“It also maintains a single data record for all IT configurable items, allowing our customers to exercise control over their on-premises or cloud-based infrastructures, while orchestrating key processes and tasks.”
“Subscription revenues increased by $2.0 billion for the year ended December 31, 2024, compared to the prior year, primarily driven by increased purchases by new and existing customers.”
RaptorDB Pro deal volume, year-over-year growth · 2026-CQ2
CRM annual contract value as the CEO describes it · as-of 2026-06-30
Reported line it is matched to
Subscription revenues rose to , which the filing attributes to purchases by new and existing customers (claim c51). The call attributes part of core demand to AI; the filing does not mention it.
2026-CQ2: 2025-CQ2: 2026-CQ2:
What else could explain it
acquisition: Armis, Veza and Moveworks are inside the increase; only Armis is removed, at its guided contribution.
one time item: On-premise revenue recognized upfront was pulled into the quarter by federal demand (claim c52).
line composition: The increase also holds the AI products themselves, which the other revenue channels size.
relabel: CRM, at of contract value, is pitched as AI-native replacement of legacy systems; the product family predates that framing.
Quotes
“AI net new ACV growth continues to outpace expectations, our AI Control Tower is supercharging our Security and Risk business, and ITOM is seeing strong demand tailwinds for the CMDB to serve as an essential governance and data foundation.”
“AI net new ACV growth continues to outpace expectations. Our AI Control Tower is supercharging our security and risk business. ITOM is seeing strong demand tailwinds for the CMDB to serve as an essential governance and data foundation.”
“As Fortune 500 customers adopt EmployeeWorks, we're seeing it pull through broader HR and employee experience opportunities, a similar pattern to what's happening in the CRM business.”
“The robust attach rates of AI across the platform are also driving our data and analytics business. RaptorDB Pro deal volume grew 80% year-over-year again in Q2, and Workflow Data Fabric was in 17 of our top 20 deals.”
“The one has to then say, where is ServiceNow's place in this AI revolution? We're in the bullseye of it because the frontier models need to get activated in the enterprise.”
“The company introduced ServiceNow Action Fabric, enabling ServiceNow and third-party AI to securely take action through ServiceNow workflows. Anthropic became the first design partner, connecting Claude directly to ServiceNow workflows and actions.”
“Subscription revenues increased by $764 million and $1,430 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily driven by increased purchases by new and existing customers.”
“Q2 2026 subscription revenues exceeded the high end of our guidance range by 150 basis points, driven by a combination of net new ACV outperformance and on-premise revenue mix coming in ahead of expectations.”
“Whichever chip wins, whichever lab wins, whichever price per token regime prevails, the enterprise needs one governed layer of record for work, ServiceNow offers needed certainty in an uncertain stack. Our platform is optionality on all AI outcomes, not a bet on any one.”
“Build Agent reached general availability in ServiceNow Studio, and extended across Cursor, Windsurf, Claude Code, and GitHub Copilot, so developers can build from any environment with full ServiceNow AI Platform context and control.”
Security and risk demand attributed to AI agents and AI-enabled threats
0.22% to 1.8% of the quarter’s revenue
Incremental total: counts at zero.
our inferencedisclosure: described· motive: offensive· before LLMs: relabelled
The CEO states a floor for the security business, , calls it the fastest-growing among large security vendors and credits a new AI model with sending customers to patch their exposure (claims c54, c55); the CFO counts large security deals (claim c57). How much of the business exists because of AI is not given. The size here is the ledger's own, , an assumed share of one quarter of that floor plus Armis at its guided contribution.
Evidence: 14 quotes, 3 figures, 3 confounds, 3 from before coverage
Security and risk revenue that management ties to AI: agents as identities and assets to govern, and security activity raised by new AI models. It includes what the acquired Veza and Armis products bring in on that pitch. No figure separates it from the rest of the security business.
Why this motive
Security products sold on the AI pitch now show measured movement: deals above the million-dollar threshold, a pull effect from Armis and Veza, and AI Control Tower credited with lifting the business (claims c57, c56, c38). In Q1 the same opportunity was called upside not yet realized; the tell has changed.
Before LLMs: relabelled
Security Operations and Integrated Risk Management were established products at the anchor, and security and risk were in of the largest deals of Q1 2024, on a call that already credited the AI platform position for each business. The anchor gives no revenue for them. Veza and Armis were independent companies until 2026, acquired for and .
“ServiceNow is strengthening its position as the AI platform for business transformation. This is fueling strong performances for each of our key businesses. ITSM and ITOM were each in 16 of the top 20 deals. Security and risk combined were in 11 of the top 20.”
“Our Security Operations product suite connects an organization’s security function with the rest of the enterprise, integrating internal and third-party security and vulnerability data to quickly respond to security incidents and vulnerabilities, prioritized according to their potential impact on a customer’s business.”
“Our Integrated Risk Management (“IRM”) product capabilities include policy and compliance management, regulatory change management, compliance case management, IT and operational risk management and audit management.”
acquisition: Armis closed in April and Veza in March; their revenue is acquired and is inside the security business the CEO sizes.
relabel: Security and risk products predate LLMs; the AI framing of the demand is management's.
one time item: Federal demand in the quarter included security consolidation on on-premise terms, recognized upfront.
Quotes
“AI net new ACV growth continues to outpace expectations, our AI Control Tower is supercharging our Security and Risk business, and ITOM is seeing strong demand tailwinds for the CMDB to serve as an essential governance and data foundation.”
“AI net new ACV growth continues to outpace expectations. Our AI Control Tower is supercharging our security and risk business. ITOM is seeing strong demand tailwinds for the CMDB to serve as an essential governance and data foundation.”
“Our customers want every AI in the enterprise to be visible, governed, and secured in one command center, native or third party, they don't want any blind spots.”
“ServiceNow already was a $1 billion-plus cybersecurity business. Today, our risk and security business is the fastest-growing of the top 10 cyber companies in the enterprise.”
“I think what you should take away from this is Mythos was a gift to the ServiceNow company in the sense that everybody now is scrambling with all the exposure that they have to patch things up.”
“I think this maneuver on what we did with the AI Control Tower and setting that new vision for the company for the future, I think cybersecurity will be bigger than ServiceNow is in the next few years.”
“The Autonomous Security & Risk AI specialist combines capabilities from Armis, Veza, and AI Control Tower to govern every AI agent, identity, and connected asset across the enterprise.”
“The acquisition is intended to expand our security workflow offerings and advance AI-native, proactive cybersecurity and vulnerability response across all connected devices.”
“The other thing that is so interesting right now as you know, the attack surface is exploding. Every ungoverned asset and identity multiplies the blast radius of AI in the enterprise.”
Cost imposed, or revenue lost, by others’ AI1 channel · $0 to $19mn sized · $0 to $19mn incremental
pricing packaging
Seats and budget lost to customers' AI and to model vendors
0% to 0.49% of the quarter’s revenue
Incremental total: counts in full.
our inferencedisclosure: bounded· motive: imposed· before LLMs: new
Management again bounds the channel at nothing, in its own words: not worried about seat compression, active seats going up, no customer considering building its own, no effect of customers' AI spending on sales cycles (claims c25, c86, c26, c53). The renewal rate was in both years (claim c88). The ledger's range, , keeps a small allowance because reductions inside renewals are not counted in that rate.
Evidence: 8 quotes, 2 figures, 2 confounds, 5 from before coverage
Revenue the company would lose because of someone else's AI: customers needing fewer seats as agents do the work, customers negotiating the classic products down to fund AI, or customers moving work to model vendors and agents they build themselves. Management says none of it is happening; the renewal rate is the only reported line near it.
Why this motive
A toll channel: any seat reduction or budget moved to AI vendors is the customer's decision. Imposed by construction.
Before LLMs: new
The renewal rate was in FY2024, as in 2023 and 2022, and the 10-K notes that a customer reducing its subscription at renewal is typically not counted as lost. Budget substitution was already a question on the Q1 2024 call, where the CEO said generative AI spending would not come out of IT spending, and the risk factors name competition from AI powered automation. Seat loss to customers' own agents is not described.
“Our digital workflow products include most of our product offerings and are generally priced on a per user basis. Our remaining product offerings, primarily comprised of our IT Operations Management (“ITOM”) products, are predominantly priced on a subscription unit basis.”
“Competition from cloud-based vendors may increase as they build business applications or AI powered automation solutions that compete with our products and services.”
Renewal rate, this quarter and the prior-year quarter · 2026-CQ2
Share of net new business that is non-seat-based · 2026-CQ2
What else could explain it
other: The renewal rate does not count a customer that reduces its subscription (claim c89).
mix shift: With of net new business non-seat-based, a fall in seats would be offset in the same contracts and would not show as lost revenue.
Quotes
“Are we worried about seat compression? Not at all. Our addressable user base is growing and 50%, five zero, of our net new business is already non-seat based.”
“We keep seat-based pricing because customers prefer it for predictability, particularly now, where a lot of pricing out there has been less than predictable. Are customers going to build their own? I've yet to meet a customer who would even consider it.”
“Using the right technology for the right job, and then managing the budgets, including all the tokens and the security of this, has become pretty important.”
Q2 2026. Growing slower than revenue: sales and marketing (+21.6%). A displaced cost shows up as a line that stays under the dashed revenue line. These are the audited lines, as first reported; nothing here is attributed to AI by the filing. Not drawn: total cost of revenues, which one-time items move by more than 60% in a quarter; the values are in the table below.
Research and developmentSales and marketingGeneral and administrativeTotal operating expensesRevenue