ServiceNow, the enterprise software company known for its workflow automation tools, is generating plenty of buzz around its artificial intelligence features. But according to a new analysis from UBS, that buzz hasn't yet translated into meaningful new spending from customers.
In a note released ahead of ServiceNow's third-quarter earnings, scheduled for October 28th, UBS said demand looks “stable-to-improving.” The investment bank reached that conclusion after talking with ServiceNow's partners, the companies that help sell and implement its software. The picture they painted: enterprise software budgets remain tight, and most growth is coming from existing customers renewing contracts and adding more of ServiceNow's existing products, rather than from big new AI-driven deals.
AI interest vs. AI budgets
ServiceNow has been pushing its AI capabilities hard, including a product called AI Control Tower, which is designed to help companies manage and monitor their AI deployments. UBS notes that customers are increasingly curious about these tools. But curiosity, the bank says, hasn't yet become actual dollars.
That gap between interest and spending is a common theme across the tech sector right now. Many companies are experimenting with AI, but they're still figuring out how to budget for it, especially when overall IT spending is under pressure. As we've seen with other tech names, AI demand can be strong while the actual revenue impact takes time to materialize.
UBS also highlighted a shift in how customers want to pay. Instead of signing large, up-front contracts, more customers are leaning toward usage-based pricing, where their bill rises or falls depending on how much they actually use the software. This model can be attractive in a cautious spending environment because it lets customers start small and scale up gradually. But it also makes a software company's revenue more sensitive to whether customers are truly using the platform more, not just whether they've signed a contract.
Security and governance: the next catalyst?
While AI excitement may be ahead of the budget curve, UBS thinks the bigger medium-term opportunity could come from a less flashy area: security and governance. As companies deploy more AI tools, they're increasingly focused on controlling access, managing data, and ensuring compliance with regulations. ServiceNow's security and governance features could address those needs.
UBS believes these features could support faster growth in the second half of 2026 and into 2027. That's a longer timeline than the immediate AI hype might suggest, but it points to a more durable source of spending as companies move from experimenting with AI to managing it at scale.
The bank maintained its “neutral” rating on ServiceNow's stock but raised its price target to $150 from $110. The shares were trading around $138 at the time of the note.
What it means for investors
For investors, the raised price target with a neutral rating sends a clear signal: the market should focus less on AI excitement and more on evidence that customers are actually expanding what they pay for. The October 28th earnings report will be a key test.
Investors will likely scrutinize whether ServiceNow can show growth driven by renewals and upsells, and whether any early security-and-governance add-ons show up in bookings or guidance. If AI interest remains just talk, the stock's valuation may have limited room to expand.
Usage-based pricing adds another layer of complexity. While it can smooth sales in a cautious environment, it also makes revenue more volatile, tied to actual usage rather than contracted commitments. That means ServiceNow's results could be more sensitive to how quickly customers adopt and use its tools.
This dynamic isn't unique to ServiceNow. Across the software industry, companies are navigating the shift from selling licenses to selling outcomes, and investors are learning to read the new metrics. The broader market has been watching AI-related demand closely, but the real test is whether that demand turns into billed revenue.
For now, UBS's message is one of cautious optimism. ServiceNow's fundamentals look stable, and there's a clear path to growth in security and governance. But the AI story, while compelling, hasn't yet moved the budget needle. Until it does, investors may want to keep their expectations in check.
