ServiceNow (NYSE:NOW) posted stellar Q1 earnings that exceeded expectations across virtually every metric. The AI platform leader saw its shares surge 15% following the announcement. This was a pretty dramatic reversal since markets have been de-risking their portfolios and dumping more expensive stocks in the past few weeks.
Still, does this mark a turning point, or is the premium valuation for NOW stock too expensive for new entries?
ServiceNow's Q1 2025 performance was exceptional by any standard, with total revenue growing 18.6% and reaching $3.09 billion. The company's subscription revenues form the backbone of its business model and grew 19.1% to reach $3.01 billion (20% in constant currency).
Operating income jumped 36% year-over-year to $451 million, while net income rose to $460 million ($2.20 per share), up significantly from $347 million ($1.67 per share) in the year-ago quarter. On an adjusted basis, earnings reached $4.04 per share. This handily beat analyst expectations by 6.6%.
Perhaps most telling was ServiceNow's current remaining performance obligations (cRPO), which grew 22% year-over-year to $10.31 billion and exceeded guidance by 250 basis points. AI adoption is driving significant expansion within ServiceNow's product portfolio. The company reported that ITSM Pro Plus was present in 15 of its top 20 deals, ITOM Pro Plus new annual contract value rose approximately 70% quarter-over-quarter, SecOps Pro Plus quadrupled, and Creator Pro Plus average deal size tripled.
The valuation is definitely a hurdle right now. The business is undeniably solid, but you’re paying nearly 57 times forward earnings and 15 times sales. In exchange, you’re getting great growth and even better earnings.
This is a solid buy if the broader market environment is bullish. But considering things are so shaky, even a good business isn’t something Wall Street might be interested in paying a bigger premium for. It is already up over 15%, so I’d buy the dip on other growth stocks first before buying NOW. There are plenty of opportunities now.
The average price target is $1,047 and implies over 11% upside.
