ServiceNow's Cybersecurity Business Now Growing Faster Than Any Top-10 Rival, as AI ACV Crosses $1 Billion Ahead of Schedule
Q2 2026 earnings call, July 22, 2026
ServiceNow delivered a quarter that beat every guided metric, but the more consequential disclosure was strategic: the company says its risk and security business is now the fastest-growing among the top ten cybersecurity vendors in the enterprise, a claim CEO Bill McDermott made explicitly and repeatedly. "We now have a 10-figure cybersecurity business that's growing faster than all the other top cybersecurity companies," McDermott said, adding later that he expects ServiceNow to "move up the leaderboard from a #8 company to contending for the top spot." That is a materially more aggressive cyber ambition than the company has previously signaled, and it reframes how investors should think about the Armis and Veza acquisitions completed late last year.
Cybersecurity reframed as a core growth pillar, not a bolt-on
Management's framing was unusually direct: the AI Control Tower, combined with Armis (device visibility, tracking 7 billion connected devices) and Veza (identity governance across humans, machines and AI agents), is being positioned as a full pre-breach-to-post-breach platform. McDermott argued the addressable attack surface is expanding structurally, citing 2.2 billion new AI agent identities entering the enterprise globally and 40 billion connected devices expected within four years. Notably, McDermott suggested this business could eventually eclipse the core workflow franchise: "I think cybersecurity will be bigger than ServiceNow is in the next few years... all I hear you talking about is cyber." CFO Gina Mastantuono confirmed security and risk solutions appeared in 16 of the top 20 deals in the quarter, with 24 deals over $1 million, underscoring that this is already showing up in the numbers, not just the narrative. Importantly, management was careful to characterize this as additive rather than competitive with established security vendors, with McDermott name-checking "friends" at rival firms and describing ServiceNow's push as complementary distribution rather than displacement.
AI monetization ahead of plan, with a new product line coming
ServiceNow AI ACV surpassed $1 billion in the quarter, with net new ACV accelerating 40% quarter-over-quarter, keeping the company on track for its $1.5 billion ACV target by year-end. Management said it is already tracking ahead of the longer-term goal of AI reaching 30% of ACV by 2030. Deals containing five or more AI products grew 5.5 times year-over-year, and customers with agentic AI in production have grown ninefold over nine months. Pricing uplift on Pro Plus SKUs remains above 30%, with new AI-native SKUs tracking to the 20%-30% framework laid out at the company's Financial Analyst Day. Perhaps the most notable forward-looking disclosure was McDermott teasing an unannounced business model shift: a new conversational, ticketless service desk product aimed at what he called the "Fortune 500,000," designed to let ServiceNow "replace their legacy offerings and bypass the start-ups." Several customers are already in beta ahead of general availability, and management described it as the first of several new AI-native products coming in "the weeks to come" — a detail investors will want to track closely given the TAM implications.
Level 1 ITSM automation delivering real labor arbitrage
Chief Product Officer Amit Zavery gave the most concrete efficiency data point of the call on the company's Level 1 AI specialist, now live with more than 40 customers. Zavery said the product is closing 80-85% of service requests without human interaction, compressing resolution times from roughly two days to twenty minutes. He was blunt about the economic logic: "It's also labor arbitrage... we get to monetize the labor cost, which the employees have to pay -- employers have to pay the employees. Now they can do this in a much cheaper way so we can take away the labor cost as well." The city of Raleigh was cited as the first local government to run this in production with no in-house AI engineering team, which management framed as evidence the product works without heavy customer-side technical investment — a meaningful proof point for broader public sector and mid-market adoption.
CRM and voice AI gaining real traction against entrenched incumbents
ServiceNow's CRM business, now roughly $2 billion in ACV, accelerated both sequentially and year-over-year, with sales CRM average deal size doubling. Management disclosed a large airline is running customer service voice calls entirely on ServiceNow's voice AI CRM agents in production, handling 5 million annual calls in year one — a concrete, scaled example that lends credibility to voice as a next expansion vector. A North American telecom infrastructure win was cited as enabling volume to scale threefold "with no added headcount" while cutting repricing time from weeks to hours. Management was careful to acknowledge established CRM competitors "are not going away," but the deal metrics suggest ServiceNow is taking incremental share in specific workflow niches like CPQ and order management rather than attempting a frontal enterprise-wide assault.
Guidance raise is real, but management flagged a timing quirk
Subscription revenue grew 23% in constant currency, 150 basis points above the high end of guidance, while current RPO grew 21.5% in constant currency, a 200 basis point beat. Operating margin came in at 29.5%, three points above guidance. Mastantuono was transparent that roughly half of the quarter's upside came from a pull-forward of on-premise federal revenue from the third quarter into the second, describing it as "simply about timing" rather than genuine outperformance, though she stressed the remaining beat was driven by strong underlying net-new ACV. Full-year subscription revenue guidance was raised modestly, by $15 million at the midpoint to $15.770 billion, representing 21% constant-currency growth — a relatively conservative pass-through of the ACV overachievement that Citi's Tyler Radke pushed back on during Q&A, prompting Mastantuono to acknowledge the company is deliberately guiding with prudence given the macro environment. Gross margin guidance of 81% reflects near-term pressure from faster-than-planned hyperscaler ramp and AI consumption costs, though management characterized this as a short-term drag that should ease as scale improves unit economics.
Headcount discipline promised despite sales investment
Sales and marketing headcount rose sharply in the quarter, partly from the Armis and Veza acquisitions and partly from deliberate investment ahead of security business ramp. McDermott made a specific commitment to capital markets: the company will exit 2026 and enter 2027 with the same total headcount as before the three acquisitions (Moveworks, Veza, Armis) were completed, implying meaningful internal redeployment and cost discipline even as the company continues hiring quota-carrying sales reps. This is a concrete commitment investors can hold management accountable to in coming quarters, and it explains how operating margin still expanded three points despite the M&A-related cost additions.