ServiceNow lifts outlook after AI contracts pass $1 billion

ServiceNow reported fiscal second-quarter revenue of $3.99 billion and adjusted earnings of 90 cents per diluted share, ahead of Wall Street expectations, and raised its full-year subscription revenue forecast. Shares rose more than 3% in late trading after the company said its AI products passed $1 billion in annual contract value, a metric investors have been using to gauge whether generative AI spending is turning into software commitments.

For the quarter ended June 30, revenue increased 24% from a year earlier. Analysts cited by GuruFocus had expected revenue of $3.93 billion and adjusted earnings of 86 cents per share.

Subscription revenue, ServiceNow’s core line, was $3.88 billion, up 24.5% as reported and 23% in constant currency. Adjusted operating margin was 29.5%. Current remaining performance obligations, which reflect contracted revenue expected over the next 12 months, rose 21% to $13.2 billion. Total remaining performance obligations also increased 21%, reaching $29 billion.

AI becomes the number investors were watching

ServiceNow said its AI portfolio crossed $1 billion in annual contract value during the quarter. The company gave an ACV figure, rather than a separate AI revenue number, so the disclosure speaks to contracted value rather than recognized sales.

Chairman and Chief Executive Bill McDermott said in the company’s earnings release that deployments of ServiceNow’s agentic AI software increased ninefold over the past nine months. He also claimed ServiceNow is the fastest-growing large enterprise software and cybersecurity company, and pointed to its AI Control Tower as a driver. Those are company claims, and ServiceNow did not provide detailed deployment counts in the figures cited.

The enterprise software vendor also reported stronger large-deal activity. ServiceNow closed 123 transactions with more than $1 million in net new annual contract value, up nearly 40% from the prior-year period. It ended June with 658 customers paying more than $5 million annually.

Guidance moves higher

ServiceNow now expects full-year subscription revenue of $15.76 billion to $15.78 billion, implying growth of about 22.5%. The company attributed the higher outlook to continued net new annual contract value momentum.

For the third quarter, ServiceNow guided for roughly $3.98 billion in subscription revenue, up 20.5%. The company said demand from U.S. federal customers pulled some on-premises subscription revenue into the second quarter from the third quarter.

President and Chief Financial Officer Gina Mastantuono said net new AI bookings again exceeded the company’s expectations and that AI Control Tower helped growth in ServiceNow’s security and risk business. The company did not disclose a baseline for those AI booking expectations in the details cited.

The print arrived after a weak stretch for the stock. ServiceNow shares were down about 35% for the year before the earnings release, and TipRanks reported that options traders had been pricing in a move of more than 12% in either direction around the results. The after-hours reaction was smaller than that implied swing, but the numbers gave investors a cleaner read on demand than many AI-labeled software updates have provided.

This story draws on original reporting from SiliconANGLE.