A $7.75 Billion Reason to Buy ServiceNow Stock Before 2026

In an attempt to accelerate growth, ServiceNow (NOW) has been pursuing acquisitions. While NOW stock has declined by almost 30% year-to-date (YTD), there appears to be a strong case for reversal in momentum with the recently announced deal for Armis.

On Dec. 23, ServiceNow announced the acquisition of Armis for a consideration of $7.75 billion. The company believes that ServiceNow and Armis will be positioned to create an “end-to-end security exposure and operations stack.”

Further, with the acquisition, ServiceNow’s market opportunity for security and risk solutions is set to triple. This will be a catalyst for growth acceleration. Overall, CEO Bill McDermott believes that the company will have the “only AI control tower that drives workflow, action and business outcomes.”

Raymond James analysts also have a positive view on the deal that makes “strategic sense.” Raymond James further believes that the business combination will ensure that customers “better discover, manage, and secure both their IT and OT assets.”

ServiceNow is a cloud-based solutions provider for digital workflows. In simple words, the company’s AI platform connects people, processes, data, and devices. The objective is to ensure higher productivity and better business outcomes in organizations.

ServiceNow has a global presence with a recurring revenue business model that reported a renewal rate of 97% for Q3 2025. Currently, 63% of revenue comes from North America, 26% from EMEA, and 11% from the APAC region.

With growth concerns, NOW stock has declined by 24% in the past six months. However, with multiple acquisitions, the company seems positioned for top-line acceleration, and it might imply a possible reversal in stock trend.

For FY 2025, ServiceNow has guided for subscription revenue of $12.8 billion. This would imply a year-on-year (YoY) growth of 20.5%. It’s also worth noting that the company’s current remaining performance obligation (revenue to be recognized over the next 12 months) is $11.35 billion. This is higher by 21% on a YoY basis and provides clear revenue and cash flow visibility.

However, this does not include the impact of the acquisition of Armis. The latter has surpassed $340 million in annual recurring revenue, with ARR growth exceeding 50%. On completion of the business combination, there is significant scope for upside in ARR.

An important point to note is that ServiceNow reported cash and equivalents of $5.4 billion as of Q3. Further, for the first nine months of FY 2025, the company’s operating cash flow was $3.2 billion. Robust cash flows provide high flexibility for pursuing acquisition-driven growth. The company has already been on an acquisition spree.

The growth potential is also underscored by the point that ServiceNow has an addressable market of $350 billion (as of May 2025). The Armis acquisition has further expanded the addressable market.

Another growth catalyst for the long term is the company’s geographical expansion. Currently, only 11% of the revenue comes from APAC. There is ample scope for growth in emerging market economies.

Based on the rating of 43 analysts, NOW stock is a consensus “Strong Buy.”

While 33 analysts have assigned a “Strong Buy” rating, three and six analysts have a “Moderate Buy” and “Hold” rating, respectively. Only one analyst has assigned a “Strong Sell” rating.

Based on these ratings, the analysts have a mean price target of $225.52. This would imply an upside potential of 47%. Furthermore, considering the most bullish price target of $266.40, the upside potential is 74%.

From a valuation perspective, a forward price-earnings ratio of 78.8 seems stretched. However, the forward multiples are likely to adjust lower after the acquisition and potential growth acceleration. Furthermore, with an expanded addressable market, the outlook is positive, even beyond FY 2026 and FY 2027.

On the date of publication, Faisal Humayun Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com