ServiceNow is riding a wave of AI sales for enterprise customers

By Jon Swartz

ServiceNow Inc. is reaping the benefits nearly a year after its push into generative artificial intelligence.

The software company's stock (NOW) fell 5% in after-hours trading Wednesday following quarterly results propelled by AI sales that topped analysts' revenue and earnings estimates.

"We've become the AI platform for business transformation, for running a company on one platform," ServiceNow Chief Executive Bill McDermott said in an interview. "It's fueling performance for each of our key businesses and driving real, tangible value for customers like Microsoft Corp. (MSFT) and IBM Corp. (IBM). The old rules are getting really tired. This is a rethink-everything moment."

McDermott added: "Deals over $5 million are up 100%, and deals over $10 million are up 300% [year over year]."

ServiceNow posted fiscal first-quarter net income of $347 million, or $1.67 a share, compared with net income of $150 million, or 73 cents a share, in the same quarter a year ago. Adjusted earnings were $3.45 a share.

Revenue climbed 24% to $2.6 billion from the same quarter a year ago.

Analysts surveyed by FactSet had expected, on average, net earnings of $3.15 a share on revenue of $2.59 billion.

ServiceNow provided second-quarter subscription-revenue guidance of $2.525 billion to $2.53 billion, while FactSet analysts are forecasting $2.61 billion.

Shares of ServiceNow have catapulted 63% over the past year, but the increases have slowed in 2024. The S&P 500 index SPX is up 25% over the past 12 months.

In recent days, analysts have been ebullient about the company's stock prospects. Last week, Citigroup raised its price target to $906 from $896.

Paul Marino, chief revenue officer at GraniteShares, argues ServiceNow is "quietly making huge strides in automating the workplace and enhancing productivity through AI and [robotic process automation]."

"This upcoming earnings report will show how ServiceNow is setting a new standard for what technology can do for businesses," Marino said in an email.

-Jon Swartz

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04-24-24 1616ET

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