1 Growth Stock Down 22% to Buy Right Now

Key Points

• ServiceNow's cloud-based digital workflow services are still growing rapidly.

• It's accelerating that expansion with its AI-powered tools.

• Its stock isn't cheap, but it deserves to trade at premium valuations.

• 10 stocks we like better than ServiceNow ›

ServiceNow (NYSE: NOW), a provider of cloud-based digital workflow services, saw its stock close at a record high of $1,170.39 on Jan. 28, 2025. That 6,402% gain from its initial public offering (IPO) price of $18 in 2012 would have turned a $1,000 investment into just over $65,000.

But as of this writing, ServiceNow's stock trades at $907 a share. It retreated 22% even as it repeatedly topped analysts' expectations, raised its guidance, and secured new artificial intelligence (AI)-oriented deals. Let's see why its stock retreated -- and why that pullback is a good buying opportunity.

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Image source: Getty Images.

An evergreen business model

ServiceNow's cloud platform helps large companies organize their unstructured work patterns into streamlined digital workflows. That makes it easier for companies to expand efficiently, control their costs, and support their hybrid and remote workers. Its Now Assist AI platform accelerates that process with AI chatbots and automation tools.

ServiceNow's platform is well insulated from macro headwinds, since it becomes a useful tool for streamlining expenses and workflows during economic downturns. That's why its revenue, current remaining performance obligations (cRPO, or the remaining value of its contracts which it expects to recognize as revenue over the following 12 months), and adjusted earnings per share (EPS) continued growing at the high double digits over the past four years -- even as inflation, rising interest rates, geopolitical conflicts, tariffs, and other macro headwinds rattled the global economy. Its subscription and free-cash-flow (FCF) margins also held steady as its revenue kept rising.

Data source: ServiceNow.

What's next for ServiceNow?

At the end of the second quarter of 2025, ServiceNow maintained a high renewal rate of 98%. It served 528 larger customers that had an annual contract value (ACV) of over $5 million, while its customers with an ACV of over $20 million grew by over 30% year over year.

During that quarter's conference call, CEO Bill McDermott declared that "AI is the new UI," and that the "software industrial complex of the 21st century is converging" on its platform as the "extensible AI operating system" for agentic AI applications.

For 2025, it expects its subscription revenue, which accounts for most of its top line, to grow 19.5% to 20% on a constant currency basis as more companies use its "agentic AI" tools to automate more tasks. Analysts expect its total revenue to increase 20% for the year as it locks in more customers and integrates its acquisitions of the generative AI company Moveworks, the sales automation company Logik.ai, and the agentic AI company Data.World.

However, it still expects its adjusted subscription gross margin to dip to 83.5% in 2025 as it expands its low-margin usage-based billing options (to reach a broader range of customers) and generates more revenue from its lower-margin government contracts. On the bright side, it expects its FCF margin to expand to 32% as it reins in its capital expenditures and optimizes its internal operations with its own AI tools. Analysts expect its adjusted EPS to increase 21% for the full year.

For 2026, ServiceNow expects to generate at least $15 billion in subscription revenue, which would represent more than 17% growth from its 2025 estimates. Analysts expect its revenue and adjusted EPS to both grow 19% in 2026. Its stock might seem pricey at 55 times its forward adjusted earnings, but its evergreen business model, robust growth rates, and high exposure to the booming AI market arguably justify its premium valuation.

Why is it the right time to buy ServiceNow's stock?

ServiceNow might not attract as much attention as other high-growth tech stocks like Nvidia or Palantir, but it's still a great way to profit from the long-term growth of the cloud, digital workflow, and AI-driven automation markets. Its higher valuations might limit its near-term gains, but it's still a great growth stock to buy and forget.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Palantir Technologies, and ServiceNow. The Motley Fool has a disclosure policy.