JPMorgan (JPM.US): ServiceNow (NOW.US) AI Monetization Delayed Until 2027, cRPO Growth Stabilizing

According to Woofun AI, JPMorgan Chase (JPM.US) has maintained its overweight rating on ServiceNow (NOW.US) ahead of its earnings release, setting a target price of $150. Given the current share price of $145.36, this valuation represents an upside potential of 3.2%.

It is noteworthy that since the last earnings report, the stock has risen by approximately 58%, meaning that any further re-rating in valuation would require strong fundamental evidence, especially validation of the stability in organic cRPO (remaining performance obligations) growth.

In its report released on October 20, 2026, JPMorgan provided a detailed breakdown of the drivers for 3Q26 performance, with core logic focused on renewal expansion, AI product version upgrades, seasonal fluctuations in US federal business, and the pull effect of security products. In the short term, above-expectation results will mainly rely on renewals and upsell, while large-scale AI consumption monetization is delayed until 2027.

According to data compiled by Woofun AI, JPMorgan expects 3Q26 subscription revenue to reach $3.978 billion, up 20.6% year-on-year, which is slightly below the market consensus of $3.984 billion. For cRPO, the total is expected to reach $13.56 billion, up 19.5% year-on-year, with organic growth at approximately 17.4%.

This growth rate represents a slowdown compared to 2Q's organic cRPO growth of 19%, indicating that growth is stabilizing. Partner feedback further supports this trend: an Elite partner indicated that Q3 business progressed as planned, Q4 typically accounts for 35% to 40% of annual orders, and the 2027 budget has not been reduced. Renewals have become the most certain source of growth, with spending typically increasing by 10% to 25% after clients migrate to AI-native product versions, with the Advanced version being the most popular option.

Although 2Q benefited from a high base due to early renewals, JPMorgan expects 3Q to still outperform by about 200 basis points. In addition, the US federal business sees the strongest seasonality in Q3, with management noting that some on-premise revenue was pulled forward to 2Q due to federal demand, but the Q3 pipeline remains robust. Security products such as Armis and Veza are increasingly replacing competitors in multiple projects, providing an extra boost to the core business.

Regarding AI monetization, 2027 is expected to be the real turning point. AI annual contract value (ACV) surpassed $1 billion in 2Q26, showing significant growth compared to $600 million at the end of 2025, with Moveworks contributing over $100 million and net new AI ACV rising more than 40% quarter-on-quarter. Less than $500 million in new net additions in the second half is needed to achieve the $1.5 billion annual target.

However, the current AI ACV mainly consists of price increases from upgrading to AI product versions, with incremental consumption remaining minimal. Most customers have not yet exhausted their credit pools, and management expects real consumption monetization to occur in 2027 with broader rollout. The risk of seat compression has not yet materialized; Elite partners have not observed clients cutting seats, with only a few instances of trimming unused licenses. High-volume IT service desks and contact centers are expected to see the first wave of seat compression in 2027, by which time about 50% of net new business will have transitioned to non-seat-based models. The visibility of 2027 monetization will depend on the rate at which credit pools are used up and the proportion of non-seat-based revenue, with the former determining whether AI ACV can shift from upgrade pricing to consumption-based pricing, and the latter deciding the impact of seat compression.

At the same time, cross-selling of AI Control Tower, Armis, and Veza is also driving up average deal size, with bundling in security and governance scenarios prompting some customers to upgrade multiple modules at once during renewal.

The key to a valuation re-rating lies in the 4Q cRPO guidance. If management raises the implied organic growth guidance to 19%-20%, the market may interpret this as confidence in long-term momentum; if the guidance falls within 17%-18%, the market may see 3Q's stability as a short-term phenomenon, thereby delaying the re-rating window. Currently, there are three major risks: 3Q needs to cope with high base pressure due to early renewals in 2Q, AI consumption monetization is delayed until 2027, and seat compression only affects high-volume scenarios starting in 2027. Performance before the earnings report depends on renewal expansion, while re-rating depends on consumption monetization; the time lag between the two will ultimately determine the upside potential for the stock price.