Key Highlights

● ServiceNow AI crossed annual contract value of $1 billion in the second quarter.

● Subscription revenue was $3.877 billion, up 24.5% year on year.

● Current remaining performance obligations were $13.20 billion, up 21%.

● Full-year subscription revenue guidance is now $15.760 billion to $15.780 billion.

An artificial intelligence milestone

ServiceNow, Inc. (NYSE:NOW) reported second-quarter 2026 results on 22 July 2026 and disclosed that ServiceNow AI had crossed $1 billion in annual contract value. The company paired that milestone with subscription revenue of $3.877 billion, up 24.5% year on year, and raised its full-year subscription revenue guidance. The disclosure matters because it gives a measurable indication of how quickly customers are paying for AI features within the company's workflow platform. Subscription revenue growth was 23% in constant currency, which separates underlying demand from exchange-rate effects.

Business and sector position

ServiceNow sells a cloud platform that automates workflows across information technology, employee services, customer service and other business functions. Customers typically sign multi-year subscription contracts, so reported backlog measures such as remaining performance obligations are closely followed. The company competes with large enterprise software suppliers and specialist vendors, all of which are adding artificial intelligence agents to existing products and bidding for the same corporate automation budgets. Because the platform sits across several departments, adoption by one team can lead to wider deployment, a pattern the company describes through its large-deal and large-customer counts.

What the latest report showed

Total revenue for the quarter was $3.987 billion, up 24%, or 22.5% at constant currency. Current remaining performance obligations were $13.20 billion, up 21%, and total remaining performance obligations were $29.0 billion, also up 21%. ServiceNow had 658 customers with more than $5 million in annual contract value, up about 23%, and 123 transactions above $1 million in net new annual contract value, growing nearly 40%. Finance chief Gina Mastantuono said results beat the high end of guidance on every topline and profitability metric. The company released updated guidance for the third quarter and full year.

Financial performance and context

GAAP operating margin was 4%, or $162 million, while non-GAAP operating margin was 29.5%, or $1.173 billion. GAAP net income was $298 million, or $0.29 per share, and non-GAAP net income was $930 million, or $0.90 per share. Non-GAAP free cash flow was $634 million, about 16% of revenue. Subscription gross margin was 73.5% on a GAAP basis and 80.5% non-GAAP. The gap between GAAP and non-GAAP profit reflects adjustments set out in the company's reconciliation tables. Free cash flow was $634 million for the quarter, and the full-year target of a 35% margin implies stronger cash conversion in later periods than in this one, given the quarterly ratio of about 16%.

Risks and uncertainties

Management guides to slower growth ahead: third-quarter subscription revenue of $3.975 billion to $3.980 billion would represent growth of 20.5%, below the second-quarter rate. Competition in enterprise artificial intelligence is intense, and customers may delay large commitments if budgets tighten. Currency movements affect reported growth, as the gap between reported and constant-currency figures shows. Third-quarter cRPO growth is guided to 19.5% on a reported basis, so backlog growth is also expected to ease. The GAAP operating margin of 4% is far below the non-GAAP figure, so reported profitability depends heavily on which measure is being used.

Next steps for the AI business

For the full year, ServiceNow now expects subscription revenue of $15.760 billion to $15.780 billion, up 22.5%, with non-GAAP operating margin of 31.5% and free cash flow margin of 35%. Third-quarter current remaining performance obligation growth is guided to 19.5%. Developments to follow include the next quarterly report, further disclosure on the size of the AI business, the pace of large deals and whether margin targets are met as the company continues to invest. Investors and customers alike will watch whether the milestone widens into broader adoption.