ServiceNow (NYSE:NOW) experienced a sharp rally on Friday, with shares closing at $98.34, up 9.85% from the previous session's close. The stock opened at $90.44 and reached an intraday high of $98.92, adding approximately $9.1 billion in equity value in a single day. This increase represents roughly 72% of the company's first-quarter current remaining performance obligations (cRPO), which stood at $12.64 billion.
The move came as software stocks broadly outperformed, with investors rotating out of AI-related names into other technology sectors. The iShares Expanded Tech-Software Sector ETF (IGV) notably outperformed the VanEck Semiconductor ETF (SMH) on Friday, according to Barron's. Other software companies also saw strong gains, with Workday (WDAY) rising 9.18%, Datadog (DDOG) up 8.52%, and AppLovin (APP) gaining 6.99%.
ServiceNow's total remaining performance obligations (RPO) were $27.7 billion at the end of the first quarter, meaning its current market capitalization is about 3.7 times this backlog measure. The company's first-quarter subscription revenue was $3.671 billion, up 22% year-over-year, providing a solid base for future growth.
A near-term catalyst for the stock lies in upcoming price increases. Raymond James analyst Adam Tindle noted that customer checks indicate early data points around pricing, with ServiceNow having disclosed a 20% to 30% uplift for customers moving from legacy tiers to new Foundation, Advanced, and Prime tiers. Raymond James sees potential for actual increases to exceed that range. June 30 may be the last date to purchase legacy tiers, with those offers expected to be retired over 12 to 18 months, potentially pulling renewals forward.
Chairman and CEO Bill McDermott emphasized that AI growth is "far exceeding even our own expectations," while President and CFO Gina Mastantuono said the early close of the Armis acquisition "meaningfully expands our TAM." These comments underscore the company's optimism about its growth trajectory.
Despite the strong move, the broader market showed mixed results. The S&P 500 fell 0.05%, the Nasdaq lost 0.24%, and the PHLX chip index dropped 5.3%, according to Reuters. David Stubbs, chief investment strategist at AlphaCore Wealth Advisory, told Reuters that "questions around profitability and the capex story" in AI were "not going away." The rotation into software was partly driven by reports that OpenAI could delay an IPO until next year due to financial strains.
After Friday's close, ServiceNow traded at about 6.9 times annualized first-quarter subscription revenue and about 8.0 times cRPO. Short interest stood at 59.49 million shares, or 5.82% of the float, according to MarketWatch data. The upcoming week is short due to the July 3rd holiday for Independence Day, with the June payrolls report due on Thursday as markets are closed Friday.
