ServiceNow (NOW) continues to build its case in the enterprise software sector. Its second-quarter 2025 earnings featured yet another “beat-and-raise.” Although its stock is priced at a premium, its ambitions to expand into the massive Customer Relationship Management (CRM) market offer a compelling justification for its valuation and a clear path for future growth. Subsequently, I am Bullish on NOW, even as its stock price prepares to breach the psychologically significant $1,000 barrier.
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A Deeper Look at NOW’s “Beat-and-Raise” Quarter
Few companies are scaling revenue as quickly as ServiceNow. For those unfamiliar, it’s a cloud-based platform that streamlines business processes through workflow automation, helping enterprises boost efficiency and enhance customer experiences.
In Q2, ServiceNow reported revenue of $3.22 billion, up 22.4% year-over-year and about $100 million above estimates. EPS surged 30.7% to $4, highlighting the company’s substantial operational leverage. Demand remains solid across timeframes: current Remaining Performance Obligations (cRPO), representing revenue expected over the next 12 months, rose 24.5% to almost $11 billion. Total RPO—the whole backlog of contracted future revenue—climbed 29% to $23.9 billion. The fact that RPO is growing faster than cRPO suggests that customers are committing to larger, multi-year deals.
On the profitability front, ServiceNow is also leveraging its own AI tools to drive efficiency. Its operating margin came in at 29.5%, beating internal guidance by 2.5 points—offering an explicit endorsement of the value its technology brings.
ServiceNow Revs Up Its Growth Engine
Now Assist, ServiceNow’s flagship generative AI offering, has quickly become central to the company’s growth strategy. By embedding generative AI directly into its powerful workflow automation platform, ServiceNow has moved beyond hype—translating excitement around AI into tangible revenue. The stock price has followed suit.
The financial impact of Now Assist is best reflected in Annual Contract Value (ACV), which currently stands at a $250 million run rate. Management expects this figure to grow significantly, targeting $1 billion in ACV by 2026. Momentum is already building: AI product deal volume rose 50% quarter-over-quarter, and the company secured a $20 million Now Assist contract in Q2—evidence of growing deal size and enterprise adoption.
NOW’s Next Frontier is the CRM Market
ServiceNow is targeting the $100 billion global CRM market, currently led by Salesforce (CRM). By leveraging its strengths in workflow automation and a unified platform, ServiceNow aims to establish a significant presence. Encouragingly, 17 of its top 20 recent deals included CRM products—highlighting growing customer interest.
To bolster its push, the company is rolling out new CRM-focused AI Agents and enhanced Configure, Price, Quote (CPQ) capabilities. While Salesforce remains the dominant player, ServiceNow’s move to integrate “front-office” sales tools into its widely adopted “back-office” platform—with a 98% renewal rate—positions it well to gain traction, particularly among its existing enterprise base.
Balancing NOW’s Premium Valuation with Critical Risks
On the flip side, ServiceNow’s lofty Price-to-Earnings ratio of 121.9—more than 300% above the sector median—already prices in much of its growth potential in generative AI and CRM. That leaves the stock exposed to several headwinds that could temper its momentum.
First, the “law of large numbers” presents a challenge: sustaining revenue growth above 20% becomes increasingly difficult as the company scales and market saturation sets in.
Second, established players like Salesforce are unlikely to cede CRM market share without a fight. And finally, a prolonged global economic slowdown could lead to tighter IT budgets, putting pressure on enterprise software spending.
Is ServiceNow a Buy, Sell, or Hold?
On Wall Street, NOW sports a consensus “Strong Buy” rating based on 29 Buy, three Hold, and one Sell rating in the past three months. NOW’s average stock price target of $1,148.61 implies an upside potential of 18.56% over the next twelve months.
Just last week, CMB International Securities’ analyst Saiyi He maintained a Buy rating on NOW with a price target of $1,175. Following ServiceNow’s second-quarter earnings, the analyst expressed optimism regarding the company’s “strong demand for its AI solutions, despite macroeconomic uncertainties.”
The analyst also noted that “the company’s AI-driven products have seen substantial adoption, with a notable increase in deal counts and customer usage. Additionally, the company’s focus on leveraging AI for operational efficiency has resulted in margin expansion, further supporting the positive outlook.”
AI Ambitions Suggest the Future is Bright for ServiceNow
ServiceNow’s strong double-digit growth and improving margins help justify its premium valuation. Its expanding footprint in generative AI and CRM positions it as an increasingly vital player in enterprise digital transformation. However, investors should remain mindful of key risks, including intensifying competition, macroeconomic uncertainty, and the potential for execution missteps—any of which could trigger sharp market reactions.
All in all, with a sticky and scalable platform, a well-defined AI roadmap, and a vast addressable market, ServiceNow offers a compelling long-term investment case—assuming it continues to deliver on its strategic ambitions.