Why ServiceNow (NOW) is the Next Palantir (PLTR) in the AI-Driven Enterprise Software Sector

The AI-driven enterprise software sector is undergoing a transformation, with companies like ServiceNow (NOW) and Palantir (PLTR) leading the charge. While Palantir has captured investor imagination with its meteoric rise—its stock has surged 418% over the past year—ServiceNow is positioned to become the next AI powerhouse, offering superior valuation metrics, robust growth catalysts, and strategic AI integrations. Here's why NOW could outperform PLTR in the coming quarters.

Growth Trajectories: ServiceNow's Steady Momentum vs. Palantir's Volatility

Both companies are experiencing strong growth, but their paths diverge in predictability and scalability.

• ServiceNow:
• Q1 2025 subscription revenue hit $3.005 billion, a 20% year-over-year increase in constant currency.
• CRPO (Contract Revenue Performance Obligation) rose to $10.31 billion, up 22% YoY, signaling robust demand.
• The company raised full-year 2025 revenue guidance to $12.64–12.68 billion, implying 18.5%–19% growth.

• AI-driven products like Pro Plus and Now Assist Consumption are key growth engines, with Pro Plus deals quadrupling YoY.

• Palantir:

• Q1 2025 revenue reached $883.9 million, a 39% YoY jump, driven by U.S. commercial (71% growth) and government (45% growth) segments.
• However, international sales fell 10% YoY, causing a 12% stock selloff post-Q1 results.
• Full-year guidance of $3.89–3.90 billion assumes continued U.S. dominance but risks geographic imbalance.

Valuation: ServiceNow's Undervalued Gem

Palantir's sky-high valuation—$352 billion market cap—has investors questioning its sustainability. In contrast, ServiceNow offers a more compelling value proposition:

• Price-to-Sales (P/S) Ratio:
• ServiceNow: ~8x (vs. 108x for Palantir).

• A 70% discount to Palantir's premium multiple, despite comparable growth rates.

• Rule of 40:

• ServiceNow's Q1 2025 31% operating margin plus 20% revenue growth yields a 51% score, versus Palantir's 83% (driven by higher growth but lower margins). ServiceNow's higher margin stability makes its growth more profitable.

• Analyst Targets:

• ServiceNow's average price target is $1,085.71, implying a 13.6% upside from current levels.
• Palantir's stock trades above its average target ($106.12), suggesting skepticism about its valuation.

AI Strategies: ServiceNow's Breadth vs. Palantir's Depth

Both companies leverage AI, but their approaches differ:

• ServiceNow:
• AI Platform: Now Assist and Pro Plus integrate AI into its core IT, CRM, and HR workflows, enabling end-to-end automation.
• Customer Base: Serves 508 customers generating >$5M in ACV, with 72 deals >$1M in Q1.

• Strategic Edge: Its unified platform reduces fragmentation, making it easier for enterprises to adopt AI without overhauling existing systems.

• Palantir:

• AIP Platform: Focuses on data unification for government and select commercial clients.
• Strengths: Long-term government contracts (e.g., Pentagon's $1.3B Maven deal) and niche partnerships.
• Limitation: Reliance on high-risk international markets and complex, custom deployments.

ServiceNow's breadth of use cases and scalability position it to capture a broader enterprise audience, unlike Palantir's specialized focus.

Catalysts for Outperformance: ServiceNow's Q2 Earnings & AI Momentum

ServiceNow's July 23 Q2 earnings report is a critical catalyst:

• Revenue Guidance: Q2 subscription revenue is guided to $3.03–3.035 billion, a 19%–19.5% YoY increase, with EPS estimates at $3.54 (+13% YoY).
• Key Metrics to Watch:
• AI Adoption: Pro Plus deal growth and Now Assist Consumption adoption rates.
• Margin Expansion: Free cash flow margins (48% in Q1) and operating leverage.
• Upside Risks: Analysts' Zacks Earnings ESP model predicts a +2.11% surprise, supported by strong Q1 performance and recent bullish revisions.

The conference call (July 23 at 2:00 PM PT) will highlight 2026 guidance and AI initiatives, which could further boost sentiment.

Investment Considerations

• Buy NOW:
• Valuation: ServiceNow is undervalued relative to Palantir, with superior margins and scalability.

• Catalysts: Q2 earnings, AI-driven growth, and a $1,085 price target offer a compelling risk-reward.

• Avoid Overpaying for PLTR:

• Valuation Risks: Palantir's $186 P/E multiple assumes flawless execution. A repeat of Q1's international sales slump could trigger a correction.
• Geographic Headwinds: ServiceNow's global footprint (no major regional declines) is a safer bet.

Conclusion

ServiceNow is primed to replicate Palantir's AI-driven success but with a more sustainable valuation and broader enterprise appeal. Its Q2 earnings and AI momentum could propel it to outperform PLTR in the coming quarters. Investors seeking exposure to the AI enterprise software boom should prioritize NOW over the overvalued PLTR.

ServiceNow's steady rise contrasts with Palantir's volatility, reflecting its stronger fundamentals and undervalued position.

Disclosure: This analysis is for informational purposes only and not a recommendation to buy or sell securities. Always conduct your own research.