[ServiceNow Q2 2026 Earnings Call] ServiceNow's AI ACV Surges Past $1 Billion, Cybersecurity Revenue Becomes Fastest-Growing Among Top 10 — Raises Full-Year Guidance

ServiceNow is putting numbers behind its AI ambitions. In its second-quarter earnings call on July 22, the company not only blew past its own targets but crossed a symbolic threshold: AI annual contract value (ACV) exceeded $1 billion, accelerating more than 40% quarter-over-quarter. That milestone, paired with a cybersecurity business now growing faster than any other top 10 cyber firm, fed an across-the-board beat and a raised full-year outlook.

“We are who we said we were,” said Chairman and CEO Bill McDermott, invoking a phrase he used seven years ago. “The path to value isn’t just making AI, it’s deploying AI securely across the enterprise.”

Financial performance at a glance

Metric	Q2 2026 Actual	Y/Y Growth (CC)	vs. Guidance
Subscription revenue	$3.877 B	23%	+150 bps
CRPO	$13.2 B	21.5%	+200 bps
RPO (approx.)	$29 B	22%	—
Non-GAAP operating margin	29.5%	—	+300 bps
Free cash flow margin	16%	—	—
Renewal rate	98%	—	best-in-class

CC = constant currency; bps = basis points

Total remaining performance obligations (RPO) ended near $29 billion, reflecting an increase in average customer contract duration. The company added 32 customers with more than $20 million in ACV over the past year, bringing the total number of $5 million-plus ACV customers to 658.

AI: “It already has” — the inflection point is here

When asked when AI deployment would mark a growth inflection, McDermott was blunt: “It already has.” AI net new ACV surpassed $1 billion and is tracking ahead of the target of 30% of ACV by 2030. The number of customers with agentic AI in production grew 9x over the last nine months. Deals that included five or more ServiceNow AI products jumped 5.5x year-over-year.

New AI-native stock-keeping units (SKUs) are lowering the barrier to entry. President and CFO Gina Mastantuono highlighted that first-time agentic AI buyers rose 45% year-over-year, with upgrade pricing uplifts of 20–30% in line with the framework laid out at the company’s financial analyst day. “Customers aren’t paying us for tokens, they’re paying for resolutions,” she said.

President and Chief Product Officer Amit Zavery offered a concrete example: the L1 ITSM specialist is already live with more than 40 customers, handling 80–85% of service requests without human interaction. Resolution times dropped from days to 20 minutes. “This is a game changer,” Zavery said. “We also get to monetize the labor cost.”

Cybersecurity: an 8th-place business with No. 1 growth

McDermott framed ServiceNow as a cybersecurity powerhouse: the risk and security unit is a $1-billion-plus business and the fastest-growing among the top 10 enterprise cyber companies. The acquisitions of Armis and Veza are being integrated to create an “end-to-end security platform” spanning cyber risk, compliance, agentic incident response, exposure management, identity access, cyber-physical security, and vulnerability detection.

Attack surface explosion is driving urgency, McDermott argued. Veza maps access across human, machine, and AI identities, while Armis already tracks 7 billion devices in real time. Combined with ServiceNow’s AI Control Tower, which provides discovery, governance, and a kill switch for rogue AI, the company is positioning itself as the “rules and rails” of the enterprise. “Mythos was a gift to ServiceNow,” McDermott said, referring to the shifting threat landscape.

Security and risk solutions appeared in 16 of the top 20 deals, with 24 deals exceeding $1 million. The AI Control Tower is already being leveraged by a global services firm to help clients triage cybersecurity activity, and McDermott predicted the cyber business will become “bigger than ServiceNow” in a few years.

CRM and EmployeeWorks gain traction

Beyond AI and cyber, ServiceNow’s CRM business is now a $2 billion ACV operation. CRM net new ACV growth accelerated both year-over-year and quarter-over-quarter, with average deal size doubling. A large airline is now running 5 million annual voice calls on ServiceNow’s voice AI CRM agents. “Voice is the next frontier, we’re winning it,” McDermott said.

EmployeeWorks, the AI front door built on the Moveworks acquisition, saw deal volume grow over 150% sequentially. It is pulling through broader HR and employee experience opportunities, much like CRM is expanding from CPQ to full front-office replacements. One partner closed a full front-office CRM replacement in just two months.

“Not all just on-prem” — guidance and seasonality

The full-year subscription revenue midpoint was raised by $15 million to $15.755–$15.770 billion, implying 21% constant currency growth. Q3 subscription revenue is guided to $3.975–$3.980 billion (20% cc), with CRPO growth of 20% cc.

Addressing the relatively modest full-year raise despite the Q2 outperformance, Mastantuono explained that about half the beat came from U.S. federal on-premise revenue pulled forward from Q3—a timing shift. “The beat was not all just on-prem,” she said. “We had really strong net new ACV in the quarter as well, which allowed us to raise the full-year guide.” McDermott added that federal government business has never been stronger, and the Q2 strength is a “very good indicator” for the historically large Q3.

Guidance Item	Full Year 2026	Q3 2026
Subscription revenue	$15.755–$15.770 B	$3.975–$3.980 B
Subscription gross margin	81%	—
Non-GAAP op margin	31.5%	31%
Free cash flow margin	35%	—
CRPO growth (CC)	—	20%

Gross margin guidance of 81% reflects higher hyperscaler adoption and accelerating AI consumption—a near-term headwind that Mastantuono views as a mid-term tailwind as hyperscaler costs decline and smart token optimization takes hold.

Q&A: pricing, competition, and deal cycles

Analysts probed competitive dynamics. Goldman Sachs’ Gabriela Borges asked about the L1 ITSM cycle and monetization. Zavery stressed that users “get the outcome” without managing individual AI pieces, while Mastantuono noted the AI ACV milestone and the compounding effect of consumption.

On pricing, Bank of America’s Tal Liani questioned whether outcome-based pricing from rivals could create pressure. Zavery defended the hybrid license-plus-usage model: “When you use more, that means you are getting good outcomes.” Mastantuono added that ProPlus SKUs still command above 30% uplift.

Citi’s Tyler Radke pressed on the size of the full-year raise. Mastantuono reiterated the on-prem pull-forward and said the full-year guide passes along all net new ACV overachievement, while being prudent for the back half.

Asked about deal elongation, McDermott dismissed concerns. “I have not seen any change. If I’ve seen any change, it’s on the positive.” He emphasized that C-suite engagement is increasing and that contracts are lengthening, not shortening.

When Jefferies’ Samad Samana noted a sharp increase in sales headcount, Mastantuono said it reflects M&A talent, the security ramp, and ongoing hiring. McDermott pledged the company will end 2026 with the same headcount as before the three acquisitions, while margins scale.

A re-rating underway

McDermott closed with a call for investors to re-rate the stock. “We’re in the control business. One platform, one system of action, any cloud, any agent, any workflow, any model, governed, secured and accountable.” With AI crossing $1 billion, cybersecurity outpacing incumbents, and a six-unicorn portfolio expanding to seven in 2027, ServiceNow is betting that its unique position as a system of record with deep enterprise context will translate into durable compounding growth—and a higher multiple.