ServiceNow, a prominent player in the enterprise software sector, reported a significant shift among its customers from AI experiments to broader deployments, as indicated in its recent earnings call. CEO Bill McDermott emphasized that AI has become a critical tailwind for the company, stating, “There has never been a tailwind for ServiceNow like AI.” He noted that the company operates within a total addressable market exceeding $600 billion and has $28 billion in remaining performance obligations.
During the first quarter, ServiceNow experienced a 19% increase in subscription revenue when measured in constant currency, while current remaining performance obligations grew by 21% in the same context. The company achieved an operating margin of 32% and a free cash flow margin of 44%. This robust growth underscores the increasing reliance on AI technologies within the enterprise landscape.
McDermott highlighted the success of Now Assist, stating that customer spending exceeding $1 million has surged by more than 130% year-over-year. He pointed out that AI-driven solutions are enhancing productivity instead of leading to layoffs, with internal agents resolving 90% of employee IT requests and doing so 99% faster than human agents. Notably, ServiceNow has also realized approximately $500 million in productivity gains from its own AI implementations, allowing the company to maintain its current headcount while still achieving significant efficiencies.
Despite the enthusiasm for AI, McDermott acknowledged that many enterprise customers remain confused about the capabilities and limitations of various AI models. Chief Financial Officer Gina Mastantuono indicated that AI investments stem from multiple sources, including lower labor budgets, reallocations of technology expenditures, and the consolidation of platforms. She projected that AI commitments could reach $1.5 billion in 2023, surpassing the company’s previous target of $1 billion.
Looking Ahead
For the second quarter, ServiceNow anticipates subscription revenue between $3.815 billion and $3.82 billion, equating to growth of approximately 21% to 21.5%. For the full year of 2026, the company projects subscription revenue in the range of $15.74 billion to $15.78 billion. McDermott noted that in the first quarter of 2026, subscription revenue growth experienced a headwind of about 75 basis points due to delayed closures of several significant on-premise deals in the Middle East, which have been impacted by ongoing geopolitical tensions in the region.
In conjunction with its earnings announcement, ServiceNow has also revealed an expanded strategic partnership with Google Cloud, launching new AI solutions aimed at bringing autonomous operations to large global enterprises. This move highlights ServiceNow’s commitment to leveraging AI in ways that enhance operational efficiency and support its clients’ needs in an increasingly complex technological landscape.
As enterprises continue to navigate the evolving demands of digital transformation, ServiceNow’s emphasis on AI as a growth driver positions the company favorably within a competitive market. The integration of robust AI tools and a focus on clarity in AI capabilities will likely determine how effectively ServiceNow and its clients can utilize these innovations to drive future growth.
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