To The Moon

$ServiceNow(NOW)$’s second-quarter results challenge the idea that generative AI will simply replace established enterprise-software platforms. They do not, however, eliminate the longer-term risk that AI changes how such software is priced and consumed.

For the quarter ended June 30, subscription revenue increased 24.5% year over year to $3.88 billion. Current remaining performance obligations—contracted revenue expected within 12 months—rose 21% to $13.2 billion, while total remaining obligations reached $29 billion. ServiceNow also disclosed that its AI products surpassed $1 billion in annual contract value. ServiceNow’s July 22 results provide the figures.

Large transactions support the bullish interpretation. ServiceNow completed 123 deals worth more than $1 million in net new annual contract value, nearly 40% more than a year earlier. Management said live deployments of its agentic-AI products increased ninefold in nine months.

The strategic argument is that enterprises still need governed workflows even if AI performs more work. ServiceNow wants its platform to coordinate models, employees, databases, cybersecurity controls and automated agents. If that positioning succeeds, AI becomes a demand catalyst rather than a substitute.

There are two important qualifications. First, unusually strong US federal demand accelerated some on-premises subscription revenue from the third quarter into the second. Management explicitly identified this timing benefit, meaning Q2 growth should not be extrapolated mechanically. Second, third-quarter subscription guidance of $3.975 billion–$3.980 billion implies growth slowing to roughly 20.5%. Reuters also reported that the company’s full-year guidance increase was modest despite the quarterly beat. Reuters’ July 22 report discusses the guidance and federal contribution.

NOW 5 min Chart

The stock initially rose after hours, but it remained highly volatile in July 23 premarket indications. That conflict matters: strong results generated buying interest, yet investors are still questioning valuation, acquisition costs and whether consumption-based AI pricing will eventually pressure gross margins. A sustained recovery above the post-results high would strengthen the technical picture; losing the earnings-reaction low would suggest the market is focusing on deceleration instead.

Although I remain neutral on ServiceNow’s directional outlook, the pre-earnings options market presented an attractive opportunity to sell volatility through the $NOW 20260821 75.0 PUT$ cash-secured put. Implied volatility had risen to approximately 76%, placing it above roughly 94% of its readings over the previous year, while the volatility premium was also near the upper end of its historical range. This elevated the option premium to around $1.20 per share, providing meaningful compensation for accepting downside risk. I selected the $75 strike because it was approximately 27% below the underlying share price near $102.50 and carried a low delta of about -0.11, suggesting a relatively low market-implied probability of expiring in the money, although assignment remains possible after an adverse earnings move. If held to expiration, the premium would reduce the effective acquisition cost to approximately $73.80 per share, a level at which I would be comfortable owning the stock; otherwise, the trade benefits from post-earnings volatility contraction and time decay if ServiceNow remains comfortably above the strike.

The evidence leans moderately bullish operationally but neutral on the stock until the reaction stabilizes. The view would become more bullish if cRPO continues growing near or above 20% without revenue timing assistance. It would be invalidated by weakening large-deal activity, falling margins or evidence that AI agents reduce the value of ServiceNow’s core platform. This is personal opinion for education and is not financial advice.

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Disclaimer: This article is for informational and educational purposes only and does not constitute financial, investment, or trading advice. The views expressed are personal opinions based on publicly available information and are subject to change without notice. Investors should conduct their own research and consider their financial situation, risk tolerance, and investment objectives before making any investment decisions. I do not guarantee the accuracy or completeness of the information presented.