ServiceNow stock struggles amid AI boom, despite CEO's optimism

ServiceNow's Q2 results exceeded expectations, with the company boosting its outlook due to growing AI adoption. CEO Bill McDermott emphasized the company's Agentic AI capabilities, which enable systems to make decisions without human oversight. The company's differentiation in the enterprise AI space is expected to continue driving growth, with a report from Melius Research influencing a positive outlook from CNBC's Jim Cramer.

ServiceNow, Inc. (NOW) reported strong quarterly results in the second quarter of 2025, with the company's AI-driven transformation continuing to gain momentum. The company's stock has been volatile, but its latest performance signals a promising outlook for investors.

Key Highlights:

1. Revenue Growth: ServiceNow's subscription revenue hit $3.113 billion, up 22.5% year-over-year (YoY), according to the company's earnings report [1]. This growth was driven by the increasing adoption of the company's AI capabilities.

2. AI Control Tower and Agent Fabric: ServiceNow introduced the AI Control Tower and Agent Fabric, which provide enterprise-wide visibility and compliance frameworks, addressing gaps in competitors like Salesforce and Workday [2]. These tools have become a strategic moat for the company, offering a centralized command center for managing AI initiatives and enabling seamless collaboration between AI agents.

3. Customer Adoption: The company ended the quarter with 528 customers generating over $5 million in annual contract value. Customers contributing $20 million or more increased by over 30% year-over-year. A 98% renewal rate highlights strong customer satisfaction and sustained growth in large accounts.

4. Earnings and Revenue Estimates: The Zacks Consensus Estimate for third-quarter 2025 earnings is pegged at $4.22 per share, unchanged over the past 30 days, indicating a 13.44% increase over 2024’s reported figure. The consensus mark for third-quarter 2025 revenues is pegged at $3.35 billion, suggesting growth of 19.88% over 2024’s reported figure [1].

Market Dynamics and Outlook:

Despite these positive results, ServiceNow is navigating an environment where AI adoption is accelerating but budget scrutiny is tightening. Lengthier procurement cycles and more rigorous approval processes are slowing deal closures, creating execution risks for large-scale platforms. The federal segment remains a pressure point, with budget constraints limiting near-term upside despite the addition of six new logos in the second quarter.

However, the company's strategic positioning in enterprise AI automation remains compelling, with differentiated offerings that address real customer pain points. The AI Control Tower and Agent Fabric are expected to continue driving growth, with a report from Melius Research influencing a positive outlook from CNBC's Jim Cramer.

Investment Implications:

ServiceNow stock is currently overvalued, as suggested by the Value Score of F. Despite strong operational execution and promising AI momentum, the company's premium valuation creates limited margin for error. Investors should approach ServiceNow stock with caution, waiting for a more favorable time to accumulate the stock.

References:

[1] https://www.nasdaq.com/articles/can-servicenows-expanding-ai-powered-platform-drive-stock-higher
[2] https://www.ainvest.com/news/servicenow-ai-driven-transformation-game-changer-enterprise-software-buy-long-haul-2508/