ServiceNow's Pivot: Can Its New AI Pricing Model Power Growth?

ServiceNow's business model pivots to AI tokens as half of new bookings are non-seat-based. Analysts are divided on valuation ahead of Q1 earnings.

As ServiceNow prepares to release its first-quarter earnings on April 22, the market appears to be undervaluing one of the most significant business model transitions in the company's history. The stock currently trades well below its 52-week high of $211.48, with investor focus squarely on the upcoming report for signs of traction.

A Fundamental Shift in Revenue Generation

The core of this transition is a move away from traditional per-user licensing. Chief Executive Bill McDermott recently revealed a landmark statistic: half of all new business bookings now come from pricing models that do not rely on the classic seat-based approach. This marks the first public disclosure of this metric by the company.

This strategic shift is driven by the rise of artificial intelligence. As AI systems automate tasks previously requiring human staff, the old correlation between a client's headcount growth and ServiceNow's license revenue weakens. In response, the company is blending user licenses with AI tokens. Customers purchase these tokens based on the volume of work the platform handles autonomously, effectively decoupling ServiceNow's revenue growth from its clients' personnel expansion.

The company's flagship AI product, Now Assist, surpassed an Annual Contract Value (ACV) of $600 million by the end of 2025. With a target of $1 billion in annual revenue by the end of 2026 now considered secure, it is on track to be the fastest product ramp-up in ServiceNow's corporate history.

Wall Street's Divided Outlook on Valuation

Recent analyst commentary highlights a clear divergence of opinion:

• Morgan Stanley reaffirmed its Overweight rating and $210 price target, emphasizing the company's growth stability and significant AI monetization potential.
• Wells Fargo maintained its Overweight stance but reduced its target from $225 to $185. Analysts there view Q1 as less critical, anticipating more substantial stock catalysts from the upcoming Knowledge Conference and Investor Day.
• Stifel cut its target more sharply, from $180 to $135, citing weaker U.S. federal spending and cautious first-quarter trends.
• Benchmark initiated coverage with a Buy rating and a $125 price target.

The consensus among 34 Wall Street analysts points to an average price target of $185.55, with a wide range from $115 to $240.

Headwinds and Integration Challenges

Specific risks cloud the near-term outlook. Budget reductions within the U.S. federal government are delaying contract closures in the public sector. Furthermore, the company is navigating the ongoing integrations of its acquisitions, Armis and Veza, which require considerable operational focus.

For the full 2026 fiscal year, ServiceNow has guided for subscription revenues between $15.53 billion and $15.57 billion, representing growth of approximately 20.5% to 21%. The momentum behind Now Assist was evident in Q4 2025, when its net ACV more than doubled year-over-year, supported by 244 transactions valued above $1 million each.

The April 22 earnings release will provide the first concrete evidence of whether the new token-based model is beginning to positively impact revenue momentum or if this pivotal transition requires more time to mature.