ServiceNow (NOW) shares experienced a significant surge on Monday, climbing 8.8% to $103.44, marking its largest single-day gain in about a year. The move followed Bank of America's decision to resume coverage of the workflow-software company with a Buy rating and a price target of $130. The analyst emphasized that ServiceNow is well-positioned to benefit from the rise of AI agents, rather than being displaced by them.
In contrast, Salesforce (CRM) received a different assessment from the same team, which initiated coverage with an Underperform rating and a $160 target. Despite this, Salesforce shares still managed to rise 3.4% on the day. The divergence in ratings highlights the varying expectations for the two companies in the rapidly evolving AI landscape.
Bank of America's analyst Tal Liani argued that businesses will continue to require systems to control permissions, approvals, and audit trails, even as AI becomes more capable. "ServiceNow should benefit from, rather than be replaced by, new AI solutions," Liani wrote, suggesting that the company could serve as a control layer for AI agents, acting as a central orchestrator for automated workflows.
ServiceNow's first-quarter results, released last month, underscored its strong performance. Subscription revenue reached $3.671 billion, a 22% increase year-over-year, while total revenue came in at $3.770 billion. The company's current remaining performance obligations (cRPO), which represent contracted revenue expected within the next year, rose 22.5% to $12.64 billion. Additionally, ServiceNow reported that customers spending over $1 million annually on its Now Assist generative AI tools grew more than 130% compared to the prior year.
CEO Bill McDermott highlighted the company's consistent outperformance, stating that first-quarter results once again exceeded the top end of guidance. He described the platform as an "AI control tower" for customers operating across multiple models, clouds, and systems.
However, the company faces some headwinds. ServiceNow noted that first-quarter subscription revenue growth was impacted by approximately 75 basis points due to several large on-premises deals in the Middle East closing later than anticipated. Chief Operating Officer Amit Zavery expressed confidence that these deals would close over the course of the year, emphasizing the growing importance of non-seat-based pricing, which ties revenue to platform usage rather than just licenses.
The acquisition of Armis cybersecurity is also expected to put pressure on margins. ServiceNow indicated that the deal will reduce full-year free cash flow margin by around 200 basis points and trim operating margin by about 75 basis points, even as it improves certain revenue growth metrics.
Bank of America's note has set a positive tone for enterprise software stocks, but the AI disruption question remains unresolved. The competition between ServiceNow and Salesforce is intensifying, with AI-powered workflow tools driving tighter rivalry. Other companies like Adobe (ADBE) and Shopify (SHOP) are also facing increased pressure in marketing and commerce. As customers demand more from vendors while reducing spending on legacy software, the ability to monetize AI oversight and usage will be critical for these companies' future growth.
