ServiceNow's Q2 Earnings Signal AI-Driven Dominance and Technical Strength

ServiceNow (NOW) delivered another quarter of robust financial results, solidifying its position as a leader in AI-driven enterprise software. With its AI Annual Contract Value (ACV) surging to $250 million in Q1 2025—en route to a $1 billion target by fiscal 2026—the company is proving its ability to monetize its agentic AI platform effectively. Combined with compelling technical indicators, including a Composite Rating of 98 and strong institutional buying, NOW appears poised to outperform peers in the AI software race. Here's why investors should pay close attention.

Q2 Earnings: AI Integration Fuels Growth

ServiceNow's Q2 results, though not yet finalized as of July 7, 2025, are expected to mirror the momentum seen in Q1. Key highlights include:
- Revenue Growth: Subscription revenue is projected to hit $3.03 billion, a +19% year-over-year (YoY) increase, driven by premium AI SKUs like Pro Plus and Now Assist.
- AI ACV Progress: The company's AI ACV has quadrupled since 2023, with Pro Plus deals accounting for 15 of the top 20 contracts in Q1. This hybrid pricing model (subscription + usage-based fees) is expanding deal sizes and customer adoption.
- Margin Expansion: Non-GAAP operating margins of 31% in Q1 signal operational efficiency, even as R&D spending rises to fuel AI innovation.

The $10.98 billion FY2024 revenue and $3.42 billion in free cash flow underscore ServiceNow's financial health, enabling it to invest aggressively in AI while maintaining a net cash position of -$26 million.

Technical Analysis: Strong Buy Signals Amid Neutral Momentum

ServiceNow's technicals paint a bullish picture, though with some caution:

1. RSI and Overbought Risks:
   The 14-day RSI, a key momentum indicator, was at 63.13 on July 3, 2025, comfortably within the neutral range (30-70). This reflects a correction from its May 2024 overbought spike (RSI 82.65), suggesting reduced short-term overextension.

2. Moving Averages and Buy Zones:
   The stock is trading above its 20-day EMA ($1,009.12) and 50-day EMA ($984.96), signaling a bullish trend. A buy zone near the 21-day EMA (likely aligned with the 20-day) offers entry opportunities, as institutional buyers (A- Accumulation/Distribution Rating) continue to accumulate shares.

3. Composite Rating and Outperformance:
   ServiceNow's IBD Composite Rating of 98 places it in the top 2% of all stocks, ahead of rivals like Salesforce (CRM) and Microsoft (MSFT). This reflects superior EPS growth (+18% in Q1) and relative strength.
   

Strategic Positioning: AI Differentiation vs. Peers

ServiceNow's agentic AI platform—which automates complex workflows across IT, HR, and customer service—is its crown jewel. Unlike Microsoft's Azure (cloud infrastructure) or Salesforce's Einstein (CRM AI), ServiceNow's unified platform reduces data silos and offers end-to-end automation. Key advantages:
- Customer Stickiness: AI upselling has boosted retention, with 55% of Pro Plus customers adopting multiple AI features.
- Competitor Gaps: Salesforce and Microsoft lack ServiceNow's AI-native workflow integration, making NOW the go-to for enterprise process automation.

Risks to Consider

1. Leadership Transition: The resignation of COO Jeff McVeigh in April 2025 introduces short-term uncertainty. However, CEO Francois Locoh-Donou retains strong support, and institutional buying suggests investors aren't panicking.
2. Currency Headwinds: A $175 million revenue drag from foreign exchange fluctuations could pressure margins. The company is mitigating this with pricing adjustments and dollar-denominated contracts.
3. High Valuation: NOW's trailing P/E of 136x is rich, but its 27% EPS growth forecast for FY2025 justifies optimism.

Investment Takeaways

• Buy Zone: Accumulate NOW near the $1,009 support (20-day EMA) with a stop-loss at $938.57.
• Target: Analysts' consensus of $1,085.71 (7.5% upside) is achievable, with upside potential to $1,492 by late 2025.
• Hold for: This is a multi-year play. ServiceNow's AI roadmap, strong cash flow, and industry leadership suggest it will dominate enterprise automation for years.

ServiceNow is not just a tech stock—it's a compound growth machine. With AI adoption accelerating and technicals aligned, NOW deserves a place in any portfolio betting on the future of enterprise software.

Final Call: BUY with a hold horizon of 12+ months. ServiceNow's AI-driven growth, technical strength, and leadership in workflow automation make it a top pick in the AI software sector.