NOW Q3 Deep Dive: AI Product Momentum and Expanding Margins Highlight ServiceNow's Quarter

Enterprise workflow automation company ServiceNow (NYSE:NOW) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 21.8% year on year to $3.41 billion. Its non-GAAP profit of $4.82 per share was 13% above analysts’ consensus estimates.

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StockStory’s Take

ServiceNow’s third quarter results were well received by the market, with management attributing the positive outcome to accelerating adoption of its AI-powered workflow solutions and broad-based demand across key verticals. CEO William McDermott emphasized the company’s platform strength in integrating AI for business transformation, noting that the Now Assist suite and AI Control Tower both exceeded internal plans. President and CFO Gina Mastantuono highlighted that sectors like transportation, retail, and U.S. federal government led growth, while renewal rates remained high. McDermott pointed to high-profile customer wins and the rapid shift away from legacy systems as central to ServiceNow’s success.

Looking ahead, management’s guidance reflects confidence in continued AI adoption and operational efficiency gains. Mastantuono stated the company is raising its full-year margin targets, citing “AI operational efficiencies continue to drive incremental leverage.” McDermott described the AI opportunity as “a once-in-a-generation change,” and highlighted the momentum of Now Assist and Agentic workflows in driving customer uptake. Management flagged the MoveWorks acquisition as a future catalyst, but noted that current results are being achieved independently. CFO Mastantuono cautioned that government procurement timing may create some quarterly variability, but maintained that demand across sectors remains robust.

Key Insights from Management’s Remarks

Management highlighted that strong AI-driven product adoption, robust performance in verticals such as transportation and government, and increased operational leverage underpinned ServiceNow’s third quarter results and improved profitability.

• AI product traction: Rapid uptake of Now Assist and AI Control Tower products drove higher deal volumes, with Now Assist achieving over $500 million annual contract value (ACV) run-rate and 12 deals over $1 million in the quarter. Management noted 55-fold growth in AI Agent Assist consumption since May.

• Vertical strength: Transportation and logistics posted over 90% year-over-year growth in new contract value, while U.S. federal government and sectors like retail and education saw elevated demand for workflow automation and AI-driven solutions.

• CRM and workflow expansion: ServiceNow’s AI-powered CPQ (Configure, Price, Quote) solution and core business workflows are gaining traction in replacing legacy customer relationship management systems, with new million-dollar-plus deals in manufacturing, technology, and automotive verticals.

• Operational leverage from AI efficiencies: The company cited margin expansion as a result of “AI OpEx efficiencies” and disciplined spending, with non-GAAP operating margin surpassing 33%. Management described internal AI agent deployments as a driver of improved scalability and capacity.

• Public sector resilience: Federal government business exceeded expectations, aided by the GSA OneGov agreement, which streamlines agency procurement and is expected to increase adoption of ServiceNow’s AI platform over time.

Drivers of Future Performance

ServiceNow expects continued momentum in AI product adoption and operational efficiencies to underpin growth and expanding margins, while acknowledging potential timing impacts from public sector procurement cycles.

• AI-driven revenue growth: Management believes ongoing adoption of AI-native workflows and Agentic automation will sustain double-digit revenue growth, with Now Assist and related products projected to be a major source of incremental ACV in coming quarters.

• Margin expansion from operational efficiencies: The company is targeting higher full-year operating and free cash flow margins, attributing improvements to efficiencies gained from internal use of AI agents and rationalized data center spending as workloads move to cloud providers.

• Public sector and procurement risks: Mastantuono cautioned that the timing of government procurement processes could impact quarterly results, but described overall demand as strong across public sector and commercial markets, reducing risk to annual performance.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will monitor (1) the pace of Now Assist and AI Control Tower adoption across enterprise and government customers, (2) operational leverage from increased AI-driven efficiencies and cloud migration, and (3) progress on integrating MoveWorks post-acquisition. We will also track expansion into industry-specific workflows and the impact of public sector procurement cycles on quarterly sales patterns.

ServiceNow currently trades at $930.02, up from $912.70 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).

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