ServiceNow Surges on Strong Q2, AI Tailwinds and Raised Guidance Boost Sentiment and Technical Setup

Shares of ServiceNow (NYSE: NOW) surged over 7% Thursday following a robust second-quarter earnings report that beat expectations across the board and featured raised guidance for subscription revenue and margin expansion. The results provided a much-needed technical reprieve for the stock, which had been flirting with a breakdown below its 200-day moving average. With a clear beat and raise, strong AI momentum, and resilient large deal activity, investors appear re-energized about the workflow automation giant’s prospects in the evolving enterprise AI landscape.

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The company posted adjusted EPS of $4.09, far ahead of the $3.57 consensus. Total revenue reached $3.22 billion, beating estimates of $3.12 billion and growing 22.4% year-over-year. Subscription revenue—the company’s key growth engine—came in at $3.11 billion, up 21.5% in constant currency and also ahead of the Street's $3.03 billion estimate. Most notably, current remaining performance obligations (cRPO), a forward-looking demand metric, rose 24.4% year-over-year to $10.92 billion, topping forecasts by roughly $400 million and delivering a 200 basis point beat versus guidance.

Management responded by lifting full-year 2025 subscription revenue guidance to a range of $12.775 billion to $12.795 billion, up from a prior midpoint near $12.66 billion. That represents growth of approximately 20% and signals that ServiceNow continues to deliver on its promise of durable expansion. Operating margin guidance was also raised to 30.5% for the year, while the free cash flow margin is now expected to be 32%. These outlook upgrades reflect not only strong customer demand but also internal productivity gains from the company’s own AI deployment efforts.

AI was front and center during the earnings call. CEO Bill McDermott proclaimed, “Every business process in every industry is being refactored for agentic AI.” He cited sharply rising volumes and deal sizes for Now Assist, ServiceNow’s flagship AI platform. "On AI, NOW Assist net new ACV to date beat expectations once again in Q2. Our key AI Pro Plus deal count, including IPSM, CSM, and HR, was up over 50% quarter on quarter. We also closed our largest NOW Assist deal to date at over 20 million." Now Assist ACV remains on track to surpass $1 billion by calendar year 2026.

Importantly, ServiceNow is also embedding AI into its internal operations, unlocking efficiencies that helped expand Q2 operating margin to 29.5%, a full 270 basis points above guidance. CFO Gina Mastantuono credited this in part to AI-driven process improvements and noted a 3-point year-over-year increase in free cash flow margin. The company ended the quarter with $10.8 billion in cash and investments, providing plenty of balance sheet flexibility to support innovation and potential M&A.

Despite a strong quarter, management did acknowledge some near-term headwinds, particularly in the U.S. federal sector. NOW incorporated the weaker environment into its guidance. In its 2024 annual earnings report, ServiceNow said one U.S. federal government customer accounted for 11% of revenues. Due to shifting budget priorities and evolving agency missions, ServiceNow expects a two-point drag on cRPO growth in Q3. However, Mastantuono emphasized that a large cohort of customer renewals in Q4 should offset this seasonal pressure, and said the guidance appropriately reflects federal sector dynamics. Overall, Q3 subscription revenue is expected to range between $3.26 billion and $3.27 billion, comfortably ahead of the $3.20 billion consensus.

The key drivers behind the quarter included sustained demand for digital workflow transformation, accelerating AI monetization, and strong cross-sell activity within existing enterprise accounts. ServiceNow continues to expand in core industries like technology, telecom, logistics, and energy, all of which posted net new ACV growth above 50% year-over-year. Additionally, the company saw record growth in high-spending accounts, with over 528 customers now generating more than $5 million in ACV and a 30% year-over-year increase in those spending over $20 million.

Risks remain. Continued caution in the public sector could weigh on growth if budget constraints persist longer than anticipated. Analysts also flagged questions around the sustainability of AI-driven large deal activity and whether competitive dynamics in enterprise automation could limit pricing power. However, management struck a confident tone, repeatedly stressing the breadth and flexibility of the Now Platform, and the long runway for AI adoption across core business workflows.

On valuation, ServiceNow trades at around 14.5x forward sales and over 40x forward earnings, which places it among the more expensive names in large-cap enterprise software. Yet the company's high growth, deep enterprise entrenchment, and accelerating AI monetization arguably justify the premium. Multiple analysts raised price targets following the print, with Needham boosting its target from $1,050 to $1,200 and Mizuho lifting to $1,200 from $1,100, both citing execution, visibility, and margin strength.

In summary, ServiceNow delivered a well-balanced quarter that quelled investor concerns, reaffirmed its leadership in enterprise AI, and reset the tone for the second half. With upward revisions to guidance, impressive large deal traction, and a technical breakout reclaiming the 200-day moving average, bulls are back in control—for now. While macro risk remains a caveat, the combination of fundamental momentum and AI-driven tailwinds has reignited the ServiceNow story.