• Reported a strong 2Q26 driven by ~50bps NNACV beat.
• NNACV beat was driven by AI and cyber/risk/governance.
• AI ACV is ahead of plan.
• Recent M&A in risk/security (Armis) is ahead of plan.
• Federal vertical was better than expected, setting up for a seasonally strong 3Q26.
• Believes 2H guidance is prudent if not conservative.
• Company focused on flat headcount for the remainder of the year.

• Strong 2Q26 results included a ~50bps NNACV beat and a 175bps organic Subscription revenue beat.
• The 2Q subscription revenue beat included ~125bps of pull-in from 3Q, which management stated was just timing.

• Notes an ~100bps deceleration in guided Subscription revenue for Q3 after adjustments.
• Subscription GM% is expected to step down by 50bps to 81%, tied to increased AI usage.

• Views ServiceNow as a beneficiary of secular AI growth trends.
• Enterprises are looking to ServiceNow for more control/governance over agentic AI (e.g., an "AI kill switch").

• Price target of $141 is based on 7.8x C27 revenue and 21x C27 FCF.

ServiceNow reported a strong 2Q26 driven by ~50bps NNACV beat which, in turn, was driven by AI and cyber/risk/governance. The two appear to be increasingly intertwined as our ROI from AI thesis appears to be in early stages of development for ServiceNow as enterprises look to the company for more control/governance (i.e., AI kill switch) over agentic AI and with measurable outcomes (i.e., workflow automation). AI ACV is ahead of plan, and the company’s recent M&A in risk/ security appears to be playing out well with Armis ahead of plan. Federal was better than expected in 2Q driven, in part, by Armis/cyber, inline with our 2Q26 checks, and setting the company up well into a seasonally strong 3Q26 for the vertical. ServiceNow’s overall 175bps 2Q cc, organic Subscription revenue beat had approximately 125bps of pull in from 3Q, which management stated was just timing and not related to price/packaging changes, which we note was early 2Q. Adjusting for F/X, increased inorganic contribution from Armis as well as the ~125 bps pulled in from 3Q to 2Q26, we note an ~100bps decel from approximately 19.5% in 2Q26 to guided 18.5% for Subscription revenue after our interpretation of the adjustments. This is despite acceleration and momentum in AI, cyber, CRM, and with stronger-than-expected Federal, leading us to believe 2H guidance is prudent if not conservative. Overall EBIT, FCF margins were reit as the company continues to focus on flat headcount from C25 YE to end of this year, with a 50bps step down in Subscription GM% to 81% tied to increased AI usage. We reit our OW rating and $141 PT (7.8x C27 rev, 21x FCF) on NOW shares and continue to view ServiceNow as a beneficiary of secular AI growth trends as enterprises consolidate AI-enabling spend on their platform, driving improved control and outcomes leading to ROI from AI supporting or rating/PT.