What Happened?
Shares of enterprise workflow software maker ServiceNow (NYSE:NOW) jumped 6% in the morning session after market optimism around innovators in the software as a service (SaaS) space continued to improve following strong earnings from Salesforce. The enterprise software giant showcased clear progress in capturing demand for AI solutions, signing 200 deals within a week of launching Agentforce, its new AI platform for enterprise customers. In addition, Salesforce reported thousands more deals in the pipeline, hinting at robust future growth.
Reviewing some of the numbers, Salesforce reported sales and adjusted operating income ahead of Wall Street's expectations. On the other hand, EPS and some top-line growth indicators, including billings and remaining performance obligations (RPO), fell slightly below consensus estimates, as products like Tableau, MuleSoft, and Slack revealed some weaknesses. Despite the mixed top-line result, CRM recorded double-digit growth in the Sales and Service Cloud segments, which is encouraging.
Since the onset of the AI boom, Wall Street has been craving hard data to justify the lofty projections surrounding the industry's potential. The numbers are finally trickling in, and the data suggest the AI market's trajectory might exceed initial expectations, heralding the shift from speculative hype to tangible value creation.
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What The Market Is Telling Us
ServiceNow’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 4 months ago when the stock gained 14.1% on the news that the company reported an impressive "beat and raise" quarter, which was powered by what management considered "elite-level execution." ServiceNow beat on the RPO (remaining performance obligations, a proxy for future revenues) line. Improvement in new large contract wins this quarter was another plus. Adjusted operating income also beat by a meaningful amount, and the company slightly raised its full-year guidance for subscription revenue and operating margin.
Moving on to its AI capabilities, management provided promising insights. NowAssist (AI product) net new ACV doubled quarter-over-quarter and became the fastest-growing new product in the company's history. Notably, the company inked 11 NowAssist deals with $1 million+ ACV in Q2, two of which were over $5 million. Also, the company noted that Dell would be integrating NowAssist. Alongside similar deals, this could significantly accelerate ServiceNow's reach in the AI automation space.
Overall, this was a strong quarter with the company's improved visibility in its deal pipeline providing strong conviction in its near term forecasts. Alongside its AI momentum, investors have ample reasons to stay positive.
ServiceNow is up 62.9% since the beginning of the year, and at $1,120 per share, has set a new 52-week high. Investors who bought $1,000 worth of ServiceNow’s shares 5 years ago would now be looking at an investment worth $4,091.
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