Buy, Sell or Hold ServiceNow Stock? Key Tips Ahead of Q2 Earnings

Globe and Mail

2 days ago

ServiceNow NOW is scheduled to release its second-quarter 2025 results on July 23.
The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $3.12 billion, indicating 18.79% growth from the figure reported in the year-ago quarter.
The consensus mark for earnings is pegged at $3.54 per share, indicating growth of 13.1% from the figure reported in the year-ago quarter. The earnings figure has climbed a penny over the past 30 days.
ServiceNow's earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 6.61%.
ServiceNow, Inc. Price and EPS Surprise
ServiceNow, Inc. price-eps-surprise | ServiceNow, Inc. Quote
Let's see how things are shaping up prior to this announcement.
NOW's Q2 to Aid From Strong Subscription Revenue Growth
ServiceNow expects second-quarter 2025 subscription revenues of $3.031 billion, suggesting 20% year over year on a non-GAAP basis. The Zacks Consensus Estimate for second-quarter 2025 subscription revenues is pegged at $3.03 billion, indicating 20.2% year-over-year growth.
ServiceNow's AI-powered portfolio is helping the company win clients regularly. In the first quarter of 2025, the company reached 508 customers, generating more than $5 million in annual contract value (ACV), representing 20% year-over-year growth. NOW had 72 transactions of more than $1 million in net new ACV. The momentum is expected to have continued in the second quarter of 2025.
ServiceNow's enterprise workflow automation suite has been gaining traction as enterprises increasingly adopt digital tools to streamline operations across departments. Through the Now platform, ServiceNow supports diverse workflows, ranging from IT service management and customer service to HR, employee experience and app development.
However, NOW shares have suffered from a worsening macroeconomic environment due to higher tariffs and trade uncertainty. The company's federal business is expected to suffer from DOGE-related issues in the to-be-reported quarter. In first-quarter 2025, revenues from the U.S. public sector grew more than 30% year over year with six new logos. ServiceNow had 11 federal deals worth more than $1 million, including two that were over $5 million.
NOW Shares Lag Sector, Beat Industry
NOW shares have dropped 9.2% year to date (YTD), outperforming the Zacks Computer & Technology sector's return of 9.1%. However, ServiceNow shares have outperformed the Zacks Computers – IT Services industry's decline of 10.2%.
NOW Stock's YTD Performance
Since the company reported first-quarter 2025, NOW shares have returned 18.5%, underperforming the sector's return of 28.9% but outperforming the industry's appreciation of 7.8%.
Technically, ServiceNow shares are displaying a bearish trend as they trade below the 50-day and 200-day moving averages.
NOW Trades Below 50-day & 200-day SMAs
ServiceNow's Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales (P/S), NOW is trading at 13.92X, higher than the sector's 6.69X.
Valuation: NOW Shares Overvalued
NOW Benefits From Strong Portfolio, Rich Partner Base
ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. NOW's expanding portfolio has been a major driver. In May 2025, the company introduced its Core Business Suite, an AI-powered solution designed to streamline and transform core business operations, including HR, finance, procurement, facilities and legal, by unifying workflows and automating processes across departments to improve efficiency, reduce time to value and enhance employee experiences.
ServiceNow announced the launch of AI agents in its Security and Risk solutions, transforming enterprise security by enabling self-defending systems, improving response times, and enhancing risk management in collaboration with Microsoft MSFT and Cisco. Expanding its portfolio in May 2025, NOW announced advancements in autonomous IT, introducing agentic AI capabilities on the ServiceNow AI Platform to drive zero outages, zero downtime and zero service desk incidents.
A rich partner base that includes the likes of Alphabet, Amazon AMZN, Microsoft and NVIDIA NVDA is noteworthy. In May 2025, NOW partnered with Amazon's cloud computing arm, Amazon Web Services, to launch a bi-directional data integration solution, enabling enterprises to unify data and trigger AI-powered workflows by connecting ServiceNow with Amazon Redshift.
NVIDIA and NOW collaborated to launch AI agents for the telecom industry. The AI agents were built with NVIDIA AI Enterprise software and the AI platform NVIDIA DGX Cloud. ServiceNow has expanded its partnership with NVIDIA to enhance agentic AI by integrating NVIDIA Llama Nemotron reasoning models and AI agent evaluation tools into the ServiceNow Platform for optimized business transformation.
Acquisitions have also played an important role in expanding NOW's portfolio. In April 2025, ServiceNow announced the acquisition of Logik.ai, a company specializing in AI-powered and Configure, Price, Quote solutions. This move is set to bolster ServiceNow's CRM offerings, particularly in sales and order management, by integrating advanced AI capabilities. The Moveworks acquisition combines ServiceNow's agentic AI and automation strengths with Moveworks' front-end AI assistant and enterprise search technology.
Conclusion
ServiceNow's robust GenAI portfolio and strong partner base are expected to drive its subscription revenues in the long term. However, tariff-related headwinds are major concerns along with a stretched valuation.
ServiceNow currently has a Zacks Rank #3 (Hold), which implies investors should wait for a favorable point to accumulate the stock. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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