Why I Increased My ServiceNow Position
Behind My Latest Buy: AI Growth, Recurring Revenue, and Execution Strength
CMQ Investors,
I aim to be 100% transparent about my investment decisions. In my April 12, 2025 portfolio update, I shared that ServiceNow made up 1.6% of my stock portfolio. This past week, I used available cash in my Roth IRA to increase the position to 2.2%.
Want to know why? Keep reading.
Enterprise AI Spending: A Major Tailwind
One of the lessons your management has learned—and, unfortunately, sometimes re-learned—is the importance of being in businesses where tailwinds prevail rather than headwinds. —Warren Buffett
Right now, enterprise AI adoption is one of the clearest tailwinds. In 2025, global enterprise tech spending is projected to hit $4.9 trillion, with AI as a major driver.
For those interested, I created a short report using Perplexity. Tap the button below to download.
A Sticky, Subscription-Based Business
ServiceNow earns almost all of its revenue from subscriptions.
Subscription revenue grew 19%, reaching $3.01 billion in Q1 2025.
This is strong, double-digit growth for an already-large business.
The subscription business is growing and it’s extremely sticky. Renewal rates are nearly 100%.
Our renewal rate remained best-in-class at 98%, underscoring the consistent value that ServiceNow delivers to our customers. —Gina Mastantuono, CFO
High retention signals product stickiness, customer satisfaction, and embedded value. Most importantly, it gives me more certainty as a long-term investor.
More Metrics That Matter
Gross Margin: 79%
Free Cash Flow: $1.48B, up 21% YoY
Remaining Performance Obligations (RPO): $22.1 billion (up 25% YoY)
RPO refers to all the revenue ServiceNow is contractually guaranteed to receive in the future from its current customer contracts.
It’s a leading indicator of future revenue and cash flow.
Strong RPO growth suggests high customer confidence and long-term commitment.
High-Value Customers: 508 with >$5M in ACV (up from 425 YoY)
That’s a 19.5% YoY increase in big-ticket customers—proof of deepening enterprise trust.
The Ultimate Measure of Value
What matters most is that ServiceNow grows free cash flow per share. If ServiceNow keeps increasing this number, long-term investors win—even if the stock price is volatile short-term.
Our ultimate financial measure, and the one we most want to drive over the long-term, is free cash flow per share….earnings don’t directly translate into cash flows, and shares are worth only the present value of their future cash flows, not the present value of their future earnings. —Jeff Bezos (2005)
Final Thoughts
ServiceNow’s Q1 earnings didn’t shift my thesis. It reinforced it.
Execution is strong. Guidance accounts for macro uncertainty, but pipeline momentum and federal demand provide ballast.
Buying more shares below my average cost basis just made sense.
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