I still remember how the ticketing system worked at my first office job. Whenever the printer stopped working, or I couldn’t log in, I’d submit a request, get an automated response, and wait for someone to fix it.
Back then, at most all I cared about was getting back to work. It never once occurred to me that the software handling those requests could be part of a business worth tens of billions of dollars. To me, it was invisible plumbing.
That invisibility is the problem and the opportunity in the ServiceNow (NOW) story. The company sits behind the workflows of thousands of large organizations, yet its stock is down 28.59% year to date and 40% over the past year, according to Yahoo Finance.
So when CEO Bill McDermott told CNBC’s Jim Cramer on Mad Money, “This is a unicorn growth company,” the obvious question was whether the market agrees.
Back when the stock was at $104, McDermott spent $3 million of his own money on shares. He is now asking investors to hold that conviction through a quarter that missed on one number.
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The $0.02 ServiceNow miss that overshadowed a strong quarter
Cramer pointed out that investors focused on a narrow earnings miss. Adjusted earnings came in at $1.00 per share, just two cents below Wall Street’s $1.02 estimate.
McDermott attributed the earnings miss to interest expenses on roughly $5 billion in debt taken on to finance recent acquisitions. He said the company opted for debt financing because of its strong free cash flow. Dismissing the focus on adjusted earnings per share, he added, “Everybody knows in software that’s the least important measurement.”
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Beneath that number, ServiceNow’s Q3 results, reported Oct. 28, beat the high end of guidance across its topline and profitability metrics.
Subscription revenue was $3.988 billion, up 21%. Total revenue was $4.106 billion, up 20.5%. Remaining performance obligations reached $29.7 billion, up 22%. The company raised its full-year free cash flow margin target to 36%.
That is where the “rule of 57” comes from: 21% subscription growth plus a 36% free cash flow margin. Management says it expects to reach 60 soon.
A software company says it has no chip problem
The next claim carries the weight of McDermott’s pitch. “What other company at the forefront of the agentic enterprise has no capital or compute constraints?” he asked.
Much of this year’s AI story has been about scarcity: memory shortages, power shortfalls, chip supply. ServiceNow sits above that stack. It does not build data centers or buy GPUs. It sells the layer that governs how AI agents behave inside a company.
I find this easier to understand when I think about how things work in my own job rather than looking at an earnings presentation. If a company starts using software that can make decisions and take action on its own, someone still needs to decide what it can and cannot do.
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McDermott calls ServiceNow’s answer the Super Intelligence Control Tower, and says it includes a kill switch that can revoke an agent’s permissions at the moment of execution, “not after damage is done.” I covered that angle intensively for TheStreet back in July.
The partnership list suggests rivals are willing to plug in. On Oct. 28, ServiceNow expanded its OpenAI partnership and launched the Control Tower Alliance, whose founding members include Anthropic, AWS, Cisco, NVIDIA, OpenAI, Okta and Stripe, according to the company’s Q3 fiscal 2026 release.
The human outcomes are in the customer examples. Thrive now resolves 73% of issues at first contact. Germany’s Bundesliga resolves 89% of fan questions at first contact. Thrive says it returned more than 14,500 engineer hours to customer-facing work.
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What the numbers say about whether the thesis is working
The most important metric for the AI argument is consumption. ServiceNow’s year-to-date agentic AI consumption in production is up more than 13x year over year, according to CFO Gina Mastantuono. The company raised its AI annual contract value target to $1.7 billion, up from $1 billion at the start of the year.
That target has now been raised twice. If it holds, it speaks to McDermott’s claim that customers want results now: “They don’t want a proof of concept. They’re tired of the stories.”
One area, however, fell short of expectations. Remaining performance obligations are a forward-looking measure, but this is a consumption-driven model, which means revenue depends on customers actually using what they buy. McDermott described a “hockey stick” ahead as customers renew their first tranche of usage.
The bear case is also fair. A 40% stock drop over the last 1 year reflects growing investor fears that AI agents could eat into demand for traditional software licenses, even as the company continues to deliver strong quarterly results.
McDermott answers that ServiceNow is the governing layer, not the thing being replaced. For investors, the test is whether the 13x consumption growth turns into renewals on the next cycle. If it does, the 57 becomes 60, and a two-cent miss will be remembered as just noise.
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