Why ServiceNow Rallied Today
Key Points
ServiceNow rallied along with the rest of the enterprise software sector today.
Salesforce's earnings report spurred a major rally across the sector.
The report indicated that enterprise software companies are successfully adapting to agentic AI, rather than being disrupted.
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Shares of enterprise software giant ServiceNow (NYSE: NOW) rallied 9.2% on Thursday as of 1:26 p.m. EDT.
ServiceNow didn't report any news today, but its close peer Salesforce (NYSE: CRM) reported earnings last night.
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Both stocks had been punished earlier this year, as the emergence of agentic AI spurred fears that the new capability would disrupt the software sector, in what has been called the "SaaS-pocalypse." However, Salesforce's outstanding earnings report last night appeared to allay those fears.
Given how depressed software sector valuations had become, it's no surprise that both Salesforce and its peers like ServiceNow are rallying today.
What SaaS-pocalypse?
In its fiscal second quarter ending in July, Salesforce reported revenue growth of 10.8% to $11.35 billion and adjusted (non-GAAP) earnings per share of $5.90, trouncing analyst estimates by a whopping 80%. Salesforce also guided strongly, increasing its full-year fiscal 2027 revenue outlook to $46.25 billion at the midpoint, up by $0.2 billion, while increasing its adjusted EPS outlook to $16.69, up significantly from a prior guide of just $14.09.
Other key performance indicators (KPIs) came in very strong. For one, contracted remaining performance obligations (cRPO), or contracts for future subscription revenue, increased 14%, ahead of current revenue growth. That indicates future revenue could accelerate, as the full-year revenue guidance suggests.
Furthermore, Salesforce discloses AI-related KPIs that suggest its AI-infused offerings are taking off. The company's "Agentforce" features grew its annualized revenue run rate by 210% to $3.9 billion, approaching 10% of this year's revenue guide. Salesforce also discloses something called Agentic Work Units (AWUs), which are individual tasks that a Salesforce agent completes. AWUs were up a whopping 97% quarter-over-quarter -- not year over year, but quarter over quarter.
ServiceNow has also developed several AI-related software offerings, such as its ServiceNow AI Control Tower, which helps run autonomous agents securely, all within the compliance specifications of enterprises across the organization. Therefore, the rapid uptake of Salesforce's agentic offerings bodes well for ServiceNow's as well.
Image source: Getty Images.
ServiceNow and Salesforce should be survivors
Both ServiceNow and Salesforce are more than just point software solutions, which may be subject to disruption. Each software company's offerings are really a platform spanning multiple departments and functions within an organization. Therefore, they are less likely to be displaced and more likely to be both utilized by and incorporated into AI agents.
We also saw evidence of this last night, with Salesforce announcing a new combined offering with the leading AI lab Anthropic called "Claudeforce." The offerings will allow users to access Salesforce's enterprise context and data within Claude, while Anthropic's Claude capabilities will also be available within Agentforce and Salesforce's Slack collaboration tool.
The close melding of the two companies suggests that traditional software companies will likely collaborate with new AI labs for win-win outcomes, rather than be disrupted by them.
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Billy Duberstein and/or his clients have positions in Salesforce and ServiceNow. The Motley Fool has positions in and recommends Salesforce and ServiceNow. The Motley Fool has a disclosure policy.
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