ServiceNow's Strategic Acquisitions and Their Impact on Long-Term Growth and Valuation

ServiceNow's recent acquisitions of Veza and Armis represent a bold strategic pivot toward AI-driven identity security and cyber exposure management, positioning the company at the intersection of two of the most critical tech trends: AI governance and enterprise security. These moves aim to strengthen its AI Control Tower-a platform designed to automate and optimize workflows across IT, HR, and customer service-while addressing growing risks in hybrid IT environments. However, the question remains: Do these acquisitions justify ServiceNow's premium valuation, or do they signal a compelling entry point for investors willing to bet on its long-term vision?

Strategic Acquisitions: Enhancing AI Control Tower and Risk Management

ServiceNow's acquisition of Veza for an undisclosed sum brings an AI-native identity security platform that maps access relationships across human, machine, and AI identities. Veza's Access Graph technology enables continuous visibility into permissions, ensuring AI agents operate within secure boundaries. This aligns with ServiceNow's broader goal of embedding security into workflows, particularly as enterprises deploy autonomous AI systems. For example, Veza's capabilities allow organizations to enforce least-privilege access dynamically, reducing risks from over-privileged AI models or rogue actors.

The $7.75 billion acquisition of Armis further expands ServiceNow's security footprint by addressing cyber-physical risks. Armis's agentless asset discovery technology provides visibility into IT, operational technology (OT), IoT, and medical device environments-sectors where traditional tools often fall short. By integrating Armis into the AI Control Tower, ServiceNow can prioritize risks in real time and automate remediation, a critical advantage in industries like healthcare and manufacturing. Together, these acquisitions create a unified platform for managing AI-driven workflows, identity governance, and cyber exposure, addressing a $1.5 trillion global market.

Financial Performance and Competitive Pressures

ServiceNow's Q3 2025 results underscore its growth momentum, with subscription revenue reaching $3.299 billion-a 21.5% year-over-year increase. The company raised its 2025 subscription revenue guidance to $12.835–$12.845 billion, reflecting confidence in its market position. However, competitive pressures loom. Salesforce's Agentforce has achieved 140% YoY growth in customer adoption, while Atlassian continues to expand its AI-powered workflow tools. ServiceNow's Rule of 50+ metric-a gauge of market leadership-remains strong at 54%, outpacing Salesforce and Microsoft's 42%, but the gap is narrowing.

A key challenge lies in federal agency budgets, which are expected to tighten in Q4 2025, potentially slowing subscription growth. This highlights a vulnerability: ServiceNow's reliance on large enterprises and government clients, which are more susceptible to macroeconomic shifts.

Valuation Metrics: Premium or Overvaluation?

ServiceNow's valuation remains contentious. As of November 2025, its forward P/E ratio stood at 100.18x, significantly above the software industry average of 31.22x and its calculated "Fair Ratio" of 49.76x. While some analysts argue that the premium is justified by its 18.5–19% projected subscription revenue growth and expanding free cash flow margins, others caution that the stock is overvalued. A DCF analysis estimates ServiceNow's intrinsic value at $937.40 per share, implying a 10.8% discount to its current price.

The stock's muted performance in 2025-despite strong earnings-reflects investor caution. Its P/E ratio has compressed from over 170x in the post-pandemic tech boom to around 110x, suggesting a recalibration of expectations. For now, ServiceNow's valuation appears to hinge on its ability to monetize its AI Control Tower and security integrations effectively.

Investment Implications

ServiceNow's acquisitions of Veza and Armis are transformative, addressing critical gaps in identity governance and cyber-physical security. These moves align with the AI Control Tower's vision of automating workflows while embedding security at the core. However, the high valuation multiples raise questions about sustainability, particularly if growth slows or competitive threats intensify.

For investors, the key consideration is whether ServiceNow can maintain its 20%+ revenue growth while expanding margins. Its strong cRPO growth ($10.49 billion as of Q4 2024) and free cash flow ($1.4 billion in Q4 2024) provide a buffer, but macroeconomic headwinds and competitive pressures could test its resilience.

Conclusion

ServiceNow's strategic acquisitions position it as a leader in AI-driven security and workflow automation, but its premium valuation demands a high bar for execution. While the company's financials remain robust, the stock's current price reflects elevated expectations. Investors with a long-term horizon and a tolerance for volatility may find the current valuation compelling, particularly if ServiceNow can demonstrate that its AI Control Tower and security integrations deliver tangible value. For others, the high P/E ratio and competitive risks may warrant caution.