ServiceNow shares jump 7% after earnings 🔼 Is the software sector poised for a rebound?

ServiceNow shares are rising about 7% in after-hours trading following the company's second-quarter earnings release, which beat Wall Street expectations on both revenue and profit. The company raised its full-year subscription revenue guidance for the second time this year, pointing to continued strong demand for its artificial intelligence-powered software. The results help ease investor concerns over the so-called "SaaSpocalypse" — the idea that generative AI could reduce demand for traditional SaaS software.

Key facts

• Revenue increased to $3.99 billion, above expectations of $3.93 billion, while adjusted EPS came in at $0.90 versus the consensus estimate of $0.86.
• ServiceNow raised its 2026 subscription revenue guidance to $15.755-$15.770 billion and announced that annual contract value (AI ACV) for its AI products has already exceeded $1 billion.
• ServiceNow shares gained around 7% in after-hours trading following the report, climbing back above the $100 mark.

AI remains the company's primary growth engine

ServiceNow continues to expand its enterprise AI platform by rolling out AI agents across IT, cybersecurity, CRM, and HR workflows. The company reported that AI ACV has already surpassed $1 billion, reaching this milestone ahead of its internal targets. Management now expects AI ACV to exceed $1.5 billion by the end of 2026, while AI products are projected to account for roughly 30% of total annual contract value by 2030. The company is also expanding products such as AI Control Tower and autonomous ITSM AI specialists, which can already resolve 80-85% of service requests without human intervention.

ServiceNow raises guidance once again

This marks the second time this year that ServiceNow has increased its subscription revenue outlook. Management now expects 2026 subscription revenue of $15.755-$15.770 billion, representing approximately 21% constant-currency growth. Second-quarter subscription revenue increased 23% year-over-year to $3.88 billion, while total remaining performance obligations (RPO) rose 22% to $29 billion. At the same time, the company maintained its full-year operating margin guidance of 31.5% and free cash flow margin guidance of 35%.

Enterprise AI continues to challenge the "SaaS Apocalypse" narrative

CEO Bill McDermott said the company has not experienced longer enterprise sales cycles despite rising corporate spending on AI infrastructure. According to management, customers are increasingly looking for AI solutions that automate business processes rather than simply providing access to language models, strengthening ServiceNow's position as the enterprise platform connecting AI with day-to-day operations. The company continues to deepen partnerships with Microsoft, NVIDIA, and Accenture while expanding its platform following the acquisitions of Moveworks and Armis. Management also acknowledged that part of the exceptionally strong second-quarter performance reflected the earlier recognition of some revenue from U.S. federal government customers, although it emphasized that the primary driver remained robust demand for its AI platform.

ServiceNow is showing that AI is beginning to generate measurable returns

Perhaps the most important takeaway from the earnings call is that ServiceNow is not selling access to AI models alone, but complete enterprise solutions that automate work and deliver measurable business outcomes. Its AI specialists for ITSM can already resolve 80-85% of service requests without human intervention, reducing completion times from as much as two days to roughly 20 minutes, while the number of customers running agentic AI in production has increased ninefold over the past nine months. That is translating directly into monetization: AI annual contract value has already exceeded $1 billion, the company is targeting more than $1.5 billion by the end of 2026, and its new AI-native products are generating pricing uplifts of 20-30%. Management emphasized that customers are paying for outcomes rather than tokens, a model that could help protect margins while reinforcing ServiceNow's competitive advantage over vendors offering only AI models or standalone AI tools.

ServiceNow share price (D1 interval)

ServiceNow shares are rallying following the earnings release but still trade roughly 60% below their all-time highs. Even assuming the stock opens near $105 per share, it would still need to gain approximately 20% to reclaim its 200-day exponential moving average (EMA200, red line).

Source: xStation5