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Business Insider
29-07-2025
- Business
- Business Insider
AI Mania Provides Quarterly Catalyst for ServiceNow Stock (NOW)
Just last week, ServiceNow (NOW) delivered a standout Q2, with strong results fueled by its AI-powered offerings—particularly the Now Assist platform. These tools are not only driving meaningful revenue growth but also enhancing operational efficiency through intelligent automation and cross-functional AI workflows, positioning ServiceNow at the forefront of enterprise software innovation. Elevate Your Investing Strategy: Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence. In fact, the cloud computing solutions innovator recorded its ninth consecutive earnings beat, making its quarterly earnings calls a bit of a repeat catalyst for the stock. Concerns do linger, though. NOW's premium valuation and substantial stock-based compensation remain valid points of contention for bearish investors, which probably explains why NOW stock has given up most of its gains since last week. Given the rapid pace of AI growth—outpacing virtually every other sector—I'm firmly Bullish and believe ServiceNow still has room to run, even after a 21% gain over the past year. AI Fuels a Revenue Boom ServiceNow's Q2 revenue soared to $3.2 billion, a 22.5% YoY increase, outpacing last quarter's 18.6% growth and last year's 22.2% figure. The star of the show was, of course, AI, particularly the Now Assist platform, which saw a 50% quarter-over-quarter surge in Pro Plus deal counts. These deals, often multi-million-dollar contracts, leverage AI to simplify IT service management, customer service workflows, and HR processes. For instance, a global bank recently adopted ServiceNow's AI to automate compliance reporting, slashing processing times and boosting accuracy. The company closed 89 deals over $1 million in net new annual contract value (ACV), with 11 exceeding $5 million, a testament to strong enterprise demand for its solutions. This AI momentum also lifted current remaining performance obligations (cRPO) to $10.92 billion, up 25% YoY, beating guidance by 200 basis points. CEO Bill McDermott emphasized the edge of the company's agentic AI, which orchestrates complex, cross-departmental workflows—a capability that competitors struggle to match. As enterprises race to modernize, ServiceNow's ability to integrate AI with its workflow platform is driving stickiness and growth, positioning it as a leader in the $153 billion AI market, projected to grow at a 40.6% CAGR through 2028. Efficiency Gains Through AI Innovation Beyond revenue, I think it's exciting how AI is reshaping ServiceNow's cost structure. In Q2, its adjusted operating margin reached 29.5%, 250 basis points above guidance, thanks to AI-driven efficiencies. Tools like Now Assist automate repetitive tasks (these include anything from incident resolution to employee onboarding), freeing up resources and reducing costs. Meanwhile, the company's RaptorDB platform further enhances efficiency by speeding up data processing. The platforms helped lift free cash flow margin to 16.5%, up 300 basis points YoY. Also, NOW's adjusted net income grew by 31% YoY to $854 million in Q2. As AI continues to refine operations, ServiceNow is building an increasingly profitable business. All in all, the firm continues to demonstrate long-lasting revenue growth, as evidenced by the number of large customers it has attracted over the past five years. According to TipRanks data, NOW is now servicing over 2,000 large customers. Valuation and SBC: A Premium Worth Paying? Now, let's address the elephant in the room: ServiceNow's valuation. With a forward P/E ratio of 53x, NOW stock appears to be trading at a steep premium. Another concern I have is the company's stock-based compensation (SBC), which accounts for approximately 15% of revenue—a lofty figure for a company as mature as ServiceNow. This elevated SBC inflates free cash flow margins; therefore, investors should scrutinize the 16.5% FCF margin to gain a more accurate understanding of the cash picture. In fact, note that over the past 12 months, NOW has generated about $4 billion in free cash flow. However, the firm paid $1.85 billion in SBC, which continuously dilutes shareholders. That said, the company's growth story makes a compelling case for its valuation. ServiceNow raised its full-year subscription revenue guidance to $12.775–$12.795 billion, which suggests 20% growth, while its 98% renewal rate underscores customer loyalty. With AI reshaping industries and ServiceNow apparently leading in agentic workflows, NOW's premium feels justified for those with a long-term view. Consistent 'beat-and-raise' quarters and a strong competitive moat further bolster confidence. Just for context, ServiceNow's revenues have grown at a CAGR of 26% over the past five years, with little to no signs of slowdown recently, all while the scaling of the business drives even stronger earnings growth. Importantly, this trend is likely to persist at least in the medium term (and potentially even longer into the future, assuming AI's benefits start to compound). Evidently, today, the consensus EPS estimates see a CAGR of 30% over the next five years. Thus, today's multiple should normalize relatively easily in the coming years, and so I don't expect a notable pullback, assuming a valuation compression takes place. Is ServiceNow a Good Stock to Buy? Currently, analysts are very bullish on NOW stock. The stock carries a Strong Buy consensus rating, based on 29 Buy, three Hold, and one Sell ratings assigned over the past three months. Today, NOW's average stock price target of $1,148.61 implies 18.5% upside potential over the next twelve months. AI Boom Fuels NOW's Long-Term Investment Case ServiceNow's latest results highlight the effectiveness of its AI-driven strategy, delivering strong growth and improving operational leverage. While its elevated valuation and significant stock-based compensation warrant attention, the company's steady execution, high customer retention, and expanding AI capabilities support a bullish long-term outlook. As enterprises continue to embrace intelligent automation, ServiceNow is well-positioned to benefit from this secular shift. If its current momentum persists, the premium valuation may prove justified—making it a compelling contender in the future of enterprise software.
Yahoo
25-06-2025
- Business
- Yahoo
NOW Expands AI Adoption: Can Subscription Growth Accelerate Further?
ServiceNow NOW is expanding the use of AI-powered workflows across industries to support customer growth and boost subscription revenues. NOW has been adding generative AI features across its key products to help enterprises automate services, follow compliance rules and improve Assist continues to gain traction across the platform. It is being used to accelerate case resolution, streamline service requests and enable intelligent self-service across IT, employee and customer workflows. The Pro Plus tier packages these capabilities into prebuilt modules, while RaptorDB enhances performance with higher throughput and faster analytics. These offerings contributed to 72 transactions of more than $1 million in net new Annual Contract Value in the first quarter of 2025, reflecting strong enterprise demand for AI-native is benefiting from an expanding partner base as adoption expands across enterprise customers. Vodafone is implementing ServiceNow's AI stack to modernize global service operations, while Aptiv is co-developing workflow solutions across industrial and automotive environments. Collaboration with Devoteam is supporting CRM transformation across Europe and the Middle East, helping enterprises digitize engagement at launch of the Singapore Protected Platform (SPP-SG) adds a sovereign AI cloud offering tailored to regulated sectors. Built on Microsoft Azure and compliant with Multi-Tier Cloud Security Level 3 standards, SPP-SG enables government agencies to adopt AI workflows with in-country data residency. ServiceNow faces growing competition from Salesforce CRM and BBAI, both of which are expanding their AI capabilities and platform reach across enterprise and public sector is advancing its AI strategy with Einstein Copilot, a generative AI assistant embedded across sales, service and support workflows. The assistant helps automate case resolutions, generate summaries and streamline CRM interactions, directly overlapping with ServiceNow's Now Assist, Pro Plus and customer service offerings. Salesforce's strong client base in front-office automation makes it a key competitor in AI-powered enterprise is focused on AI-driven decision intelligence and autonomous workflows, particularly in public sector and regulated environments. The company delivers mission-critical analytics and AI orchestration for defense, logistics and national security operations. As ServiceNow expands sovereign cloud offerings like SPP-SG, footprint in public workflows positions it as a direct challenger in government-focused AI deployment. ServiceNow's shares have declined 7.5% year to date, while the broader Zacks Computer & Technology sector has increased 0.9% and the Computer-IT services industry has plunged 10.5%. Image Source: Zacks Investment Research ServiceNow stock is trading at a premium, with a forward 12-month Price/Sales of 14.34X compared with the industry's 18.47X. NOW has a Value Score of F. Image Source: Zacks Investment Research The Zacks Consensus Estimate for ServiceNow's second-quarter 2025 earnings is pegged at $3.53 per share, unchanged over the past 30 days, indicating 12.78% year-over-year growth. ServiceNow, Inc. price-consensus-chart | ServiceNow, Inc. Quote The consensus mark for NOW's 2025 earnings is pegged at $16.51 per share, which has remained unchanged over the past 30 days. The figure indicates an 18.61% increase year over currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rak (Strong Buy) stocks here. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Salesforce Inc. (CRM) : Free Stock Analysis Report ServiceNow, Inc. (NOW) : Free Stock Analysis Report Holdings, Inc. (BBAI) : Free Stock Analysis Report This article originally published on Zacks Investment Research ( Zacks Investment Research Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
