NOW Q2 Deep Dive: AI and Workflow Expansion Drive Outperformance, Margins Improve

Enterprise workflow software maker ServiceNow (NYSE:NOW) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 22.4% year on year to $3.22 billion. Its non-GAAP profit of $4.09 per share was 14.6% above analysts’ consensus estimates.

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StockStory’s Take

ServiceNow’s Q2 results were met with a strongly positive market reaction, reflecting the company’s ability to surpass Wall Street expectations on both revenue and non-GAAP profit. Management credited the performance to widespread customer adoption of its AI-powered Now Assist products, a surge in large enterprise deals, and robust demand across all workflow segments. CEO Bill McDermott noted, “AI is what changed. And agentic AI is transforming the business model every company in the world.” The quarter also saw notable strength in technology workflows and increased renewal activity, supported by early on-premises contract renewals.

Looking ahead, ServiceNow’s forward guidance is built on continued growth in AI-driven products, expanding adoption of its Control Tower and Pro Plus offerings, and broadening its reach in front office and industry-specific workflows. Management emphasized its focus on investing in technical talent to accelerate customer value from AI transformation, while maintaining prudent margin management. CFO Gina Mastantuono explained, “We’re definitely still investing for growth to meet demand for AI transformation,” highlighting ongoing investments in sales, engineering, and R&D to support ramping AI deployments and new customer use cases.

Key Insights from Management’s Remarks

Management attributed Q2’s performance to rapid adoption of agentic AI capabilities, strong execution in new logo acquisition, and continued expansion across industries and workflows.

• AI-powered product momentum: Uptake of Now Assist and Pro Plus offerings far exceeded expectations, with customers increasingly deploying multiple AI-powered workflow tools across their organizations. Management highlighted that Now Assist net new annual contract value outperformed internal goals, and the largest Now Assist deal to date exceeded $20 million.
• Large enterprise deal growth: The company closed 89 deals greater than $1 million in net new annual contract value, with 11 exceeding $5 million. Notably, the number of customers contributing more than $20 million annually increased by over 30% year-on-year, reflecting ServiceNow’s growing importance to large organizations.
• Industry and product diversification: Technology, media, and telecom saw growth above 70% year-over-year, with transportation, logistics, retail, hospitality, and energy also showing notable gains. The addition of Logik.ai and the launch of Configuration, Price, Quote (CPQ) solutions drove new wins in sales and order management, particularly in complex front-office environments.
• Workflow Data Fabric adoption: Workflow Data Fabric, which integrates and manages enterprise data for AI-driven workflows, was included in 17 of the top 20 largest deals, helping customers combine analytics, data, and automation for smarter operations.
• Internal AI efficiencies: ServiceNow’s use of its own AI tools, such as CodeAssist, contributed to margin expansion and operational productivity, with management reporting $100 million in expected headcount savings for 2025 and increased engineering capacity.

Drivers of Future Performance

Management expects near-term growth to be led by ongoing enterprise adoption of AI-driven workflows, new product introductions, and increased investment in technical talent supporting customer AI transformations.

• Expansion of AI adoption: The company believes that continued momentum for Now Assist, Pro Plus, and Control Tower will drive additional revenue growth, as customers expand usage into more business functions and workflows. Management set a target of $1 billion in annual contract value from Now Assist by 2026.
• Front office and industry solutions: ServiceNow is broadening its addressable market by targeting front office workflows—such as sales, service, and order management—and tailoring AI-driven solutions to verticals like insurance and public sector. Management expects this strategy to unlock new deal opportunities and deepen existing relationships.
• Investments and margin balance: Management indicated that while AI-driven productivity gains are flowing into operating margins, some of these efficiencies will be reinvested to accelerate customer onboarding and technical support. The company remains cautious about potential federal spending headwinds and is maintaining prudent expense management to absorb possible integration costs from acquisitions such as Moveworks.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will be watching (1) the pace of customer expansion into new AI-powered workflows and the degree of adoption of Control Tower and Now Assist, (2) the impact of front office and industry-specific product launches on deal volume and average contract value, and (3) the integration of recent acquisitions such as Logik.ai and data.world into ServiceNow’s workflow platform. Progress in onboarding technical talent and navigating public sector budget dynamics will also be important to track.

ServiceNow currently trades at $973.37, up from $955.51 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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