ServiceNow (NYSE: NOW) shares jumped more than 7% in pre-market trading Thursday after the enterprise-software company reported stronger-than-expected second-quarter results and raised its full-year subscription revenue forecast. The earnings helped ease concerns that generative AI might displace established software platforms, but a key forward-looking metric has created a divide among Wall Street analysts.
Q2 Earnings Beat Resets Expectations
ServiceNow's second-quarter performance challenged the most bearish assumptions surrounding enterprise software. Revenue rose 24% year-over-year to $4 billion, while adjusted earnings per share of $0.90 surpassed the consensus estimate of $0.86. Subscription revenue increased 24.5% to $3.9 billion, or 23% in constant currency.
The company also raised its full-year subscription revenue outlook to a range of $15.76 billion to $15.8 billion, up from previous guidance. These figures matter because expectations had fallen sharply during a broad software sell-off driven by fears that generative AI tools could replace traditional platforms.
Customer demand remained robust, with ServiceNow completing 123 transactions carrying more than $1 million in net-new annual contract value—nearly 40% more than a year earlier. This suggests that enterprises are still committing to large-scale software deployments despite the AI disruption narrative.
cRPO Guidance Splits JPMorgan and Jefferies
Current remaining performance obligations (cRPO), which represent contracted revenue expected to be recognized over the next 12 months, climbed 21% to $13.2 billion, or 21.5% in constant currency. However, management forecast third-quarter cRPO growth of 19.5% as reported and 20% in constant currency—below the 21.5% constant-currency rate delivered in Q2.
JPMorgan analyst Mark Murphy retained an Overweight rating but remained cautious. In a note reported by TipRanks, Murphy said he saw no material execution problem in the quarter, yet warned that an "odd lull" in organic constant-currency cRPO growth could restrain sentiment until the company returns towards its earlier trajectory.
Jefferies analyst Samad Samana took a more constructive view. According to The Fly, Samana raised his price target to $140 from $135 and maintained a Buy rating, arguing that the upside reflected stronger net-new contract value as well as timing benefits from accelerated US federal demand.
AI Momentum Crosses $1 Billion Milestone
ServiceNow's AI business crossed $1 billion in annual contract value during the quarter, while the number of customers running its AI agents in production increased ninefold over nine months. This progress supports management's argument that ServiceNow can benefit from enterprise AI adoption rather than be displaced by it.
The remaining question is whether those contracts will translate into faster organic growth as they move into recognized revenue. Murphy's caution reflects the gap between strong AI headlines and a third-quarter cRPO outlook near 20%, while Samana's stance suggests larger contracts and healthier net-new annual value provide a stronger underlying signal than the headline slowdown implies.
For context, the broader software sector has been under pressure as investors question the returns on massive AI spending. Magnificent 7 earnings season has tested the AI spending thesis, with some companies showing underperformance. Meanwhile, Nvidia stock rose 3% as Alphabet earnings loom, highlighting the ongoing focus on AI-related investments.
The relief rally in ServiceNow shares comes after the stock had fallen nearly 38% year-to-date entering the results, reflecting the intense scrutiny on enterprise software valuations amid AI disruption fears. While the Q2 beat provides some reassurance, the cRPO guidance ensures the debate over ServiceNow's growth trajectory will continue.
This article is for informational purposes only and does not constitute financial advice.
