ServiceNow (NOW) Stock Faces Margin Concerns As Q2 EPS Trails Strong Revenue Growth Narratives

ServiceNow (NOW) has just posted its Q2 2026 numbers, with revenue of about US$4.0b, basic EPS of US$0.29 and net income of US$298m setting the tone for this earnings update. The company has seen quarterly revenue move from US$3.2b in Q2 2025 to US$4.0b in Q2 2026, while basic EPS over the same quarters came in at US$0.37 and US$0.29 respectively, with trailing twelve month EPS at US$1.61 providing a broader read on profitability. Taken together with an 11.3% net margin over the last year and strong earnings growth expectations, these results put the focus firmly on how durable ServiceNow's margins and growth profile look from here.

See our full analysis for ServiceNow.

With the latest figures on the table, the next step is to line these results up against the key ServiceNow narratives investors follow to see which stories hold up and which might need updating.

See what the community is saying about ServiceNow

Revenue Growth Outpaces EPS Trend

• ServiceNow lifted revenue from US$3.2b in Q2 2025 to US$4.0b in Q2 2026, while basic EPS over the same quarters moved from US$0.37 to US$0.29, and trailing twelve month EPS sits at US$1.61 on US$14.7b of revenue and US$1.7b of net income.
• Consensus narrative points to AI driven expansion and acquisitions as long term growth drivers, and the current mix of strong revenue growth and relatively modest EPS over the last year gives a concrete backdrop to those expectations.
  • Analysts see revenue growing about 19.1% per year and earnings reaching about US$4.0b by 2029, compared with US$1.7b of trailing twelve month net income today.
  • They also expect profit margins to move from 12.6% to 17.1% over three years, which sits against the reported 11.3% net margin in the latest trailing period.

Premium P/E Meets Mixed Margin Picture

• ServiceNow trades on a P/E of 56.8x versus peer and US Software averages of 26.2x and 27.2x, while net profit margin over the last year is 11.3% compared with 13.8% in the prior year.
• Bears argue that a high multiple on top of a lower margin leaves little room for disappointment, and the current numbers give them several reference points to make that case.
  • One year earnings growth of about 0.5% sits well below the 35.7% per year average over the past five years, even as the P/E remains more than double the industry level.
  • Earnings are forecast to grow around 26.4% per year with revenue at about 16.1% per year, so any further pressure on margins from AI spending or pricing could matter more when the stock already carries a premium.

For readers who see the high P/E and margin trend as a warning light, skeptics point to detailed bear cases on how AI spending and hybrid pricing could affect ServiceNow's earnings path over time 🐻 ServiceNow Bear Case

Growth Story vs DCF and Targets

• The data set points to a DCF fair value of about US$214.86 and an analyst price target of about US$140.19, both compared with a current share price of US$91.94, while trailing twelve month revenue is US$14.7b and has been growing at about 16.1% per year.
• Bullish investors highlight that multi year earnings growth of 35.7% per year and expected earnings growth of about 26.4% per year line up with those higher value estimates, and the current figures help them frame how much is already on the scoreboard.
  • Bulls point to a target earnings level of around US$5.7b by 2029 from about US$1.7b of trailing twelve month net income, alongside an assumed P/E of 46x, which they compare with the present 56.8x multiple.
  • They also focus on forecast revenue growth of roughly 23.1% per year in their scenario, above the 16.1% figure in the broader data set, using today’s US$14.7b revenue base as a starting point for that thesis.

If you want to see how those bullish growth and valuation assumptions stack up against the detailed financial model, it is worth reading the full bull case on ServiceNow 🐂 ServiceNow Bull Case

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for ServiceNow on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

If this ServiceNow update leaves you with mixed feelings, use that as a prompt to look at the full picture yourself and move quickly. To weigh both sides of the story and see how the upside and downside stack up in the current data, start by checking the 3 key rewards and 1 important warning sign.

See What Else Is Out There Beyond ServiceNow

ServiceNow pairs a high P/E with modest recent earnings growth and softer margins, which makes the current valuation sensitive to any further profitability pressure.

If that mix worries you, shift some attention to companies where valuation and fundamentals may be more closely aligned by reviewing the 38 high quality undervalued stocks.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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