ServiceNow (NYSE: NOW) experienced a sharp rally on Thursday, with shares climbing 9.03% to $137.16 in early trading, adding approximately $11.7 billion to its market capitalization. The surge was fueled by a broader revaluation of software stocks following Salesforce's (NYSE: CRM) impressive quarterly earnings, which highlighted the growing profitability of generative AI in enterprise technology.
The market's enthusiasm was evident as trading volume reached 10.5 million shares, nearly 65% of the typical daily activity. Salesforce's stock jumped over 20% at the open after the company reported annual recurring revenue (ARR) from its Agentforce and Data 360 products approaching $3.9 billion, a year-over-year increase of more than 210%. Agentforce alone saw ARR surpass $1.5 billion, climbing over 240%.
Salesforce's AI Boost Lifts Sector
Salesforce also raised its fiscal 2027 revenue outlook to a range of $46.1 billion to $46.4 billion, suggesting growth of 11% to 12%. This positive guidance, coupled with the AI-driven results, signaled to investors that established software companies are well-positioned to capitalize on the generative AI wave. ServiceNow, which markets its own proprietary AI products through enterprise subscriptions, was a direct beneficiary of this sentiment.
ServiceNow's own fundamentals remained robust. The company reported second-quarter subscription revenue of $3.877 billion, up 24.5% year-over-year. Current remaining performance obligations (cRPO) advanced 21% to $13.20 billion, indicating strong future revenue visibility. For the third quarter, ServiceNow projects subscription revenue in the range of $3.975 billion to $3.980 billion, with approximately 20% constant-currency cRPO growth expected.
Market Reaction and Analyst Views
The stock's jump on Thursday significantly narrowed the gap to the average analyst price target. ServiceNow closed Wednesday at $125.80, with a consensus target of $142.23, implying a potential upside of $16.43. Thursday's advance of $11.36 accounted for about 69% of that difference, leaving a remaining upside of just $5.07.
Wall Street remains optimistic but divided on the stock. Forty-nine analysts assign a "Strong Buy" consensus, with price targets ranging from $72 to $248. Bank of America recently lifted its target to $150, reflecting confidence in the company's AI-driven growth trajectory.
Partnership Highlights
Adding to the positive sentiment, ServiceNow's expanded collaboration with Tech Mahindra (NSE: TECHM) was highlighted. The companies unveiled the deal on August 20, which involves Tech Mahindra deploying ServiceNow workflows across its operations. Tech Mahindra reported that its deployment handles over 100,000 monthly cases spanning 90 countries, with approximately 25% of first-level support tasks streamlined. This partnership provides a commercial demonstration of ServiceNow's value proposition.
Risks and Outlook
Despite the rally, risks remain. The surge on Thursday was partly dependent on another firm's performance, and ServiceNow's forward P/E stands at 27.76, with consensus upside now at just 3.7%. Any deceleration in cRPO growth or softer conversion on AI initiatives could undo the recent re-rating.
Investors will be watching closely as ServiceNow's Chief Financial Officer, Gina Mastantuono, is scheduled to speak at the Deutsche Bank technology conference at 2:40 p.m. EDT Thursday. Her remarks may provide further insight into the company's strategy and outlook.
