ServiceNow (NOW) Q3 2025: AI-Driven Workflows Fuel 55X Consumption Surge, Margin Expansion Ahead
ServiceNow’s Q3 2025 results showcased a powerful inflection in AI workflow adoption, with Now Assist consumption up 55X since May and security workflows crossing $1 billion in ACV. The company’s AI-led platform strategy is reshaping enterprise IT, driving both top-line acceleration and margin leverage, while management raises guidance and signals further operational efficiency from AI investments. With robust momentum across federal, industry, and CRM segments, ServiceNow is positioning itself as an indispensable AI orchestration layer for global enterprises.
Summary
- AI Workflow Adoption Accelerates: Now Assist and agentic workflows are rapidly scaling, driving new enterprise consumption models.
- Security and Risk Surpass Key Milestone: Security workflows now exceed $1 billion in ACV, expanding ServiceNow’s platform relevance.
- Margin Expansion from AI Efficiencies: Operational leverage and free cash flow gains highlight durable profitability upside.
Performance Analysis
ServiceNow delivered across all major financial metrics, with subscription revenue and current RPO (remaining performance obligations) growth both exceeding 20% year-over-year in constant currency. The company closed 103 deals over $1 million in net new annual contract value (ACV), including six above $10 million, and saw broad-based strength across core IT, security, CRM, and industry workflows. Notably, the security and risk segment crossed $1 billion in ACV, becoming ServiceNow’s fifth business to reach this scale.
Profitability also outperformed, with non-GAAP operating margin at 33.5%—three points above guidance—driven by top-line outperformance, disciplined spend, and substantial AI-driven operational efficiencies. Free cash flow margin rose to 17.5%, and the renewal rate remained strong at 97% (or 98% excluding a large federal agency closure). Industry verticals such as transportation/logistics, retail/hospitality, and education led net new ACV growth, with transportation/logistics up over 90% year-over-year.
- AI Consumption Hockey Stick: Now Assist usage increased 55X since May, with 12 deals over $1 million and one over $10 million, signaling early but accelerating monetization of AI-driven workflows.
- CRM and Industry Workflow Penetration: CRM and industry workflows featured in 14 of the top 20 deals, reflecting ServiceNow’s pivot beyond IT into front-office transformation.
- Federal Segment Outperformance: U.S. federal net new ACV grew over 30% year-over-year, with Now Assist pilots quickly converting to deals and the GSA OneGov agreement unlocking broader adoption.
ServiceNow’s platform model continues to drive multi-product deals, with all top 20 deals including six or more products, reinforcing the company’s “Better Together” strategy and cross-sell momentum.
Executive Commentary
"Our AI products are on pace to exceed a half a billion in ACV this year. Excellent progress toward beating our one billion target next year, and we're totally focused on surpassing it. We saw 12 now assist deals over a million, including one over 10 million. Our AI control tower deal volume more than quadrupled quarter over quarter in Q3. And just since the end of May, AI agent assist consumption has increased over 55X."
Bill McDermott, Chairman and Chief Executive Officer
"NowAssist, Workflow Data Fabric, and RaptorDB were all ahead of plan. ServiceNow's U.S. federal business also demonstrated its resilience, surpassing net new ACV expectations for the quarter... As we advance our AI agent deployments across the company, we're unlocking substantial organizational capacity, driving measurable efficiency gains and enhancing scalability."
Gina Massantuno, President and Chief Financial Officer
Strategic Positioning
1. AI-First Platform Orchestration
ServiceNow is positioning itself as the “AI workflow company,” integrating AI across IT, security, CRM, and industry verticals. The Now Assist suite and agentic workflows provide pre-packaged, cross-functional automation, enabling customers to rapidly deploy and scale AI use cases. The hybrid pricing model—combining subscription and consumption—offers predictability and flexibility, aligning with evolving enterprise procurement preferences.
2. Security and Risk as Growth Engines
The security and risk segment, now above $1 billion ACV, is benefiting from AI-driven automation and governance needs. The AI Control Tower product resonated strongly, with deal volume quadrupling quarter-over-quarter. ServiceNow’s configuration management database (CMDB, a system for tracking enterprise IT assets) and unified AI architecture provide unique visibility and control, addressing escalating security, compliance, and risk management demands.
3. Industry and CRM Expansion
ServiceNow’s verticalized workflow approach is winning share in industries such as transportation, retail, education, and government. The platform’s industry-specific data models and pre-built flows accelerate time to value, while the CRM business is gaining traction as legacy deployments face disruption. Reference accounts in sectors like telecom (Bell), higher education (Griffith University), and retail (Ulta Beauty) illustrate the breadth of adoption.
4. AI-Driven Operational Leverage
AI deployment is driving measurable internal efficiency, margin expansion, and free cash flow uplift. Management raised full-year margin guidance, citing both top-line strength and AI-enabled cost discipline. CapEx is declining as workloads shift to hyperscalers (cloud infrastructure providers), further supporting margin accretion.
5. Federal and Public Sector Tailwinds
U.S. federal and broader public sector demand remains robust, with Now Assist and AI Control Tower driving rapid adoption. The GSA OneGov agreement simplifies procurement and positions ServiceNow for continued expansion, although management is prudently factoring in deal timing risk from the ongoing government shutdown.
Key Considerations
ServiceNow’s Q3 results underscore a multi-pronged growth strategy, with AI as both a revenue and efficiency catalyst. Investors should weigh the following:
- AI Consumption Model Scaling: The 55X increase in Now Assist usage is early evidence of a consumption-based flywheel, with significant monetization potential as enterprise adoption deepens.
- Security and Risk Expansion: Crossing $1 billion in ACV and quadrupling AI Control Tower deal volume point to sustained demand for unified governance and compliance solutions.
- Margin Expansion from AI Efficiency: Raised guidance for operating and free cash flow margins highlights the tangible impact of AI on internal productivity and cost structure.
- Vertical and Federal Momentum: Industry-specific solutions and public sector wins are broadening ServiceNow’s addressable market and reducing reliance on core IT workflows.
- Moveworks Acquisition Optionality: The pending Moveworks acquisition (AI-powered workplace automation) is expected to further accelerate ServiceNow’s AI suite, though current momentum is organic.
Risks
Deal timing risk remains elevated in the U.S. federal segment due to the ongoing government shutdown, which could impact Q4 results. Broader macroeconomic volatility, competitive intensity from other workflow and AI platform vendors, and potential customer hesitancy around large-scale digital transformation projects may also temper near-term growth. Investors should monitor the pace of AI consumption monetization and the ability to sustain cross-segment expansion.
Forward Outlook
For Q4 2025, ServiceNow guided to:
- Subscription revenue of $3.42–$3.43 billion (19.5% YoY growth)
- CRPO growth of 23% (YoY), or 19% constant currency
- Operating margin of 30%
For full-year 2025, management raised guidance:
- Subscription revenue midpoint of $12.84 billion (20.5% YoY)
- Operating margin target up 50bps to 31%
- Free cash flow margin up 200bps to 34%
Management cited strong pipeline visibility, continued AI-driven efficiency, and robust multi-product demand as key drivers. Public sector pipeline remains strong, but shutdown-related timing risk is prudently embedded in guidance. The Moveworks acquisition is expected to close by year-end, with incremental AI suite benefits in 2026.
Takeaways
ServiceNow’s Q3 2025 results reflect a decisive shift toward AI-driven workflows, with consumption-based models and security expansion unlocking new growth vectors.
- AI Consumption Flywheel: Now Assist’s 55X usage surge and broad deal momentum underscore the platform’s early but accelerating monetization engine.
- Margin and Cash Flow Upside: AI operational efficiencies are translating into higher operating and free cash flow margins, supporting durable profit expansion even as top-line growth persists.
- Watch for Federal and CRM Momentum: Federal and CRM segments are emerging as key battlegrounds for future platform adoption, with industry-specific solutions and reference lighthouse accounts driving expansion.
Conclusion
ServiceNow’s Q3 performance cements its emergence as the AI orchestration layer for the enterprise, with robust growth in AI workflows, security, and vertical solutions fueling both top-line acceleration and margin leverage. The platform’s multi-product, industry-focused strategy and prudent risk management position it well for continued outperformance as AI adoption accelerates globally.
Industry Read-Through
ServiceNow’s results signal a broader enterprise pivot from proof-of-concept AI projects to platform-scale workflow automation, with consumption-based models gaining traction. The rapid adoption of AI-powered security, risk, and compliance solutions highlights a growing need for unified governance in complex technology estates. Vendors lacking integrated workflow, domain expertise, or flexible pricing models may lose ground as enterprises consolidate around platforms delivering both operational efficiency and cross-functional automation. Public sector and regulated industries represent significant near-term opportunities for workflow and AI platform providers able to address compliance, security, and procurement complexity.