ServiceNow Q2 2026 recap: AI control tower, cybersecurity & margins

1 - Introduction

Looking at NOW Q2 2026, the headline numbers are strong, no argument there. Subscription revenue grew 23% in constant currency, more than a point above the high end of guidance. cRPO (current Remaining Performance Obligations) grew 21.5%, a two point beat.

Operating margin came in at 29.5%, three points above guidance. McDermott opened by looking back seven years and declaring "we are who we said we were." And he's got a point; they have a very strong track record so far. Yet the stock is down 60% from it's 52-week peak.

So was this quarter a validation of the NOW thesis and is the market mispricing the business, or are the other forces at play that justify the stock trading so much lower? Let's break down all the moving pieces of NOW's Q2 2026. But before diving into the details: what does NOW do exactly?

2 - ServiceNow 101

ServiceNow runs the AI Platform that large enterprises use to manage IT service requests, HR processes, customer service, and increasingly cybersecurity and identity governance, all inside one system of record. Revenue comes from multi year subscription contracts, typically three years, sold and expanded through a direct sales force and a large partner ecosystem.

The moat, in my view, is their enterprise context. ServiceNow already sits inside the daily workflows of roughly 90% of the Fortune 500, so every new capability gets distributed through relationships that already exist. That is not a small advantage.

3 - Q2 key numbers

• Subscription revenues: $3,877M, up 24.5% year over year, 23% in constant currency
• Current RPO (cRPO, a forward looking measure of contracted revenue not yet recognized): $13.20B, up 21% year over year, 21.5% in constant currency, a 200bps beat versus guidance
• Remaining Performance Obligations (RPO): $29B, up 21% year over year, 22% in constant currency, with average contract duration increasing
• Non-GAAP operating margin: 29.5%, roughly 300bps above guidance
• Non-GAAP free cash flow margin: 16%
• ServiceNow AI ACV: crossed $1B for the first time, net new AI ACV up over 40% quarter over quarter
• Renewal rate: 98%
• Deals over $1M in net new ACV: 123, up 40% year over year
• Subscription gross profit percentage, GAAP basis: 73% for the quarter, down from 80% a year ago

4 - Outlook

• Q3 2026 subscription revenues guided to $3,975M to $3,980M, 20.5% year over year, 20% in constant currency
• Q3 2026 non-GAAP operating margin guided to 31%
• Q3 2026 cRPO growth guided to 20% in constant currency
• FY26 subscription revenues raised to $15,760M to $15,780M, 22.5% year over year, 21% in constant currency
• FY26 non-GAAP subscription gross margin guided to 81%, down roughly 250bps year over year
• FY26 non-GAAP operating margin guided to 31.5%, up roughly 50bps
• FY26 non-GAAP free cash flow margin guided to 35%, roughly flat

Worth noting: about half of the beat came from a pull forward of on-prem revenue tied to strong US Federal demand, and leadership described the full year guide as deliberately conservative for the back half.

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