ServiceNow, Inc.

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Bullish +65

ServiceNow Surges 6%, Salesforce Climbs 4% as Government AI Deals Lift Enterprise Software

📈 ServiceNow shares jumped 6% to $97.36 following a Q2 FY2026 beat where subscription revenue grew 24.5% YoY to $3.88 billion.

🤖 ServiceNow's AI annual contract value surpassed $1 billion ahead of schedule, with agentic-AI production customers up ninefold in nine months.

📈 Salesforce stock climbed 4% to $162.56 after landing a $1.6 billion, three-year Department of Veterans Affairs Agentic Enterprise License Agreement.

🚀 Salesforce's Agentforce ARR reached $1.2 billion in Q1 FY2027, representing a 205% year-over-year increase.

📉 Both ServiceNow and Salesforce are down approximately 40% year-to-date, making today's rally an oversold rebound.

🔍 Analysts lifted ServiceNow price targets with Bank of America rating it Buy at $130 and Bernstein maintaining Outperform at $248.

⚠️ UBS cut ServiceNow to Neutral with a $110 target, citing mixed demand and a Q3 subscription guide below Street expectations.

🏛️ Oracle's recent $7 billion Pentagon deal reinforces the theme of government AI spending lifting the enterprise software sector.

📉 ServiceNow's gross margin slipped to 77.9% from 81%, and Q3 guidance sits below the $4 billion Street view.

⚠️ Salesforce trades at a trailing P/E of 18.85x with concerns regarding decelerating headline growth and Informatica integration risks.

Bullish Signals
  • ServiceNow reported Q2 subscription revenue of $3.88 billion, a 24.5% year-over-year increase driven by strong AI adoption.
  • ServiceNow raised its FY26 subscription revenue guidance to at least $15.755 billion, signaling confidence in future growth.
  • ServiceNow's AI annual contract value crossed $1 billion ahead of schedule, validating the commercial viability of its AI platform.
  • Salesforce secured a massive $1.6 billion, three-year deal with the Department of Veterans Affairs for Agentic Enterprise solutions.
  • Salesforce's Agentforce ARR grew 205% year-over-year to $1.2 billion, demonstrating rapid traction in its AI agent business.
  • Multiple major analysts including Bernstein, Evercore ISI, and JPMorgan lifted their ServiceNow price targets following the earnings beat.
  • The broader software sector is benefiting from a rotation back into application-layer names as AI translates into recurring revenue.
  • Federal budget priorities are flowing directly into enterprise software order books, providing a tailwind for companies like Oracle, ServiceNow, and Salesforce.
Risk Factors
  • ServiceNow's Q3 subscription guidance of $3.975 to $3.98 billion sits below the $4 billion Street consensus view.
  • ServiceNow's gross margin declined to 77.9% from 81%, indicating potential pressure on profitability or increased costs.
  • UBS cut ServiceNow stock to Neutral with a $110 target, explicitly noting that demand remains mixed in the current environment.
  • Salesforce faces execution risk associated with its $25 billion Informatica integration and decelerating headline growth rates.
  • ServiceNow benefited from federal on-premise revenue pulled forward from Q3, which may mask underlying organic subscription weakness.
  • Both ServiceNow and Salesforce remain down approximately 40% year-to-date, leaving significant room for further downside if the rally fails to sustain.
Full Analysis
ServiceNow (NYSE:NOW) shares surged 6% to $97.36 and Salesforce (NYSE:CRM) climbed 4% to $162.56 on Friday, driven by significant government artificial intelligence contracts. The rally marks an oversold rebound for both enterprise software giants, which have each shed approximately 40% year-to-date following a brutal run. This price action reflects a market rotation from AI infrastructure names back into application-layer software where AI capabilities are now translating into recurring revenue streams rather than just capital expenditure. ServiceNow reported strong Q2 FY2026 results with subscription revenue climbing 24.5% year-over-year to $3.88 billion, while its current remaining performance obligations rose 21% to $13.2 billion. The company highlighted that its AI annual contract value crossed the $1 billion mark ahead of schedule, with agentic-AI production customers increasing ninefold in just nine months. Management raised its full-year FY26 subscription revenue guidance to at least $15.755 billion, citing exceptional results that solidify their position as a top enterprise software and cybersecurity provider. Salesforce secured a major $1.6 billion, three-year Department of Veterans Affairs deal for its Agentic Enterprise License Agreement, aiming to drastically reduce veteran appointment scheduling times. This win builds on robust Q1 FY2027 momentum where Agentforce Annual Recurring Revenue reached $1.2 billion, up 205% year-over-year. While analysts have lifted price targets for ServiceNow following the earnings beat and raised guidance, Salesforce faces scrutiny regarding decelerating headline growth and execution risks associated with its Informatica integration. The broader software sector is riding a wave of government AI spending, reinforced by Oracle's recent $7 billion Pentagon deal. Investors are viewing these federal budget priorities as direct inflows into enterprise software order books, suggesting renewed willingness to pay for exposure despite previous drawdowns. However, analysts warn that today's midday gains may not hold if follow-through research notes do not extend the target-hike wave, and both companies remain deep in the red for the year with upcoming earnings reports expected to provide further clarity.