ServiceNow Sets New $1.7 Billion Target for AI Contracts in 2026
Key Facts
ServiceNow raised its target for the value of new annual AI-related contracts in 2026 to $1.7 billion, up 70% from its target at the start of the year, as it reported quarterly results showing subscription revenue growth. The company said subscription revenue reached $3.988 billion in the third quarter, up 21% year over year, while total revenue rose to $4.106 billion, an increase of 20.5%. The quarter ended on September 30, and the company reported results after the market closed on October 28. The higher annual-contract target reflects an expansion in the company’s expectations for the value of contracts tied to AI solutions, while subscription revenue remains a separate measure of revenue recognized during the period. Chief Executive Bill McDermott said "AI adoption is accelerating," linking it to growth in the company’s hybrid business model.
The company pointed to signs of increased customer use of these solutions; Chief Financial Officer Gina Mastantuono said customer consumption of agentic AI in production environments since the start of the year had risen more than 13 times year over year. In the third quarter, ServiceNow recorded 19 deals in which new net annual contract value exceeded $5 million each, an increase of more than 135% from the same period a year earlier. The company ended the quarter with 680 customers whose annual contract value exceeded $5 million. These figures combine growth in production usage, the number of large deals and the customer base with high-value contracts. The $1.7 billion target represents the value of new annual AI-related contracts, while the revenue figures measure what the company actually recognized in the quarter.
On contracted obligations, total remaining performance obligations stood at $29.7 billion at the end of the third quarter, up 22% year over year, while current remaining performance obligations were $13.65 billion, up 20.5%. McDermott said the company’s hybrid business model had reached $30 billion in remaining performance obligations, growing 23%. Quarterly subscription revenue was $3.988 billion, with annual growth of 21%, while total remaining performance obligations grew 22% year over year. Together, the metrics show growth in recognized revenue and an increase in obligations the company said remain to be fulfilled. ServiceNow’s partnership with OpenAI also expanded to help companies move from AI reasoning to governed action execution.
Income measures diverged between the accounting basis and the non-GAAP measure reported by the company. GAAP net income was $277 million in the third quarter of 2026, compared with $502 million in the third quarter of 2025. Non-GAAP net income was $1.039 billion, and non-GAAP diluted earnings per share was $1 in the third quarter of 2026. The figures published here did not include year-over-year comparisons for the two non-GAAP measures. This places the decline in GAAP net income alongside the reported non-GAAP figures for the period, without year-over-year comparisons for them.
The company raised its 2026 full-year subscription revenue forecast to a range of $15.780 billion to $15.790 billion, with expected year-over-year growth of 22.5%, or 21% in constant currency. It also increased its full-year free cash flow margin target by 100 basis points to 36%, and Mastantuono said the company was reducing capital expenditures. For the fourth quarter, ServiceNow expects subscription revenue of $4.245 billion to $4.255 billion and year-over-year growth of 22.5% to 23%, or 21.5% in constant currency. The company set expected non-GAAP operating margin for the quarter at 32%. Compared with subscription growth of 21% in the third quarter, the stated fourth-quarter growth range is higher year over year.
Before the results announcement, the company’s shares closed at $158.18 on October 26 and then at $154.78 on October 27. Both closes came before the results and guidance were announced after the market closed on October 28. The earnings call is scheduled to begin on October 28 at 21:00 GMT. The company’s fourth-quarter guidance included a subscription revenue range and non-GAAP operating margin, while its full-year guidance included a subscription revenue range and a free cash flow margin target. These forecasts set out the revenue and margin paths the company announced for the coming period alongside results for the quarter ended September 30.