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Over the past few months, cost-cutting measures in the federal government have become a top priority. Earlier this year, President Donald Trump launched the Department of Government Efficiency (DOGE) to strengthen oversight and eliminate “waste.” As part of this effort, agencies are turning to technology providers that can modernize systems and improve efficiency.
One of the biggest beneficiaries of this push is ServiceNow (NOW). Its cloud-based workflow automation platform helps federal departments update legacy systems and tighten controls. ServiceNow has capitalized on the drive to reduce federal spending without disrupting essential services, with public-sector bookings soaring and a Q1 2025 earnings beat that exceeded Wall Street’s expectations. By streamlining procurement, case management, and IT operations, ServiceNow enables agencies to do more with less, fully aligning with the Department of Government Efficiency mandate.
Given ServiceNow’s growing role in government modernization efforts, it’s worth taking a closer look at the company’s overall performance.
About NOW Stock
Based in California, ServiceNow is a cloud-based platform that streamlines and automates digital workflows. The company offers solutions for IT service management (ITSM), IT operations management (ITOM), and enterprise-wide process optimization, helping organizations boost efficiency, reduce costs, and enhance user experiences.
Recently, ServiceNow launched new AI agents across CRM, HR, IT, and other workflow platforms, aiming to deliver higher productivity and more predictable outcomes by leveraging vast enterprise datasets. The company is also embracing artificial intelligence (AI) by integrating both generative AI and agent-based AI into its platform. Moreover, its Now Assist generative AI tool helps customers in several ways, including offering an AI chatbot for inquiries, a text-to-code generator, and a case summarization feature.
Valued at a $194 billion market cap, shares of the cloud services company have rallied 31% over the past 52 weeks, although they have declined by 11% in 2025 due to a tariff-driven broader selloff.
From a valuation perspective, ServiceNow trades at premium levels, with a forward adjusted earnings ratio of 57x and a forward sales ratio of 15x, significantly higher than the sector medians of 20x and 2.5x, respectively.
NOW Delivered Strong Q1 Earnings
On April 24, shares of ServiceNow surged about 15% after the company reported strong Q1 earnings and issued upbeat guidance. The company posted revenue of $3.09 billion, up 18.5% year-over-year and slightly above the $3.08 billion consensus estimate. On the bottom line, adjusted EPS of $4.04 surged 18.5% from $3.41 a year ago, comfortably ahead of the $3.83 Street estimate.
In this quarter, U.S. public-sector revenue soared over 30% year-over-year, as agencies tapped ServiceNow to streamline procurement, case management, and IT operations. By automating routine tasks, ServiceNow helps agencies do more with less while safeguarding mission-critical services.
Speaking about the Department of Government Efficiency initiative, CEO Bill McDermott said it has “inspired and fired up government agencies to modernize at a pace we’ve never seen before.” He added, “We were made for this moment,” emphasizing ServiceNow’s readiness to help federal clients streamline operations and cut costs. McDermott pointed to a recent deployment in Raleigh, North Carolina, where ServiceNow’s solutions eliminated redundant tasks, reduced IT staffing needs, and saved the city $315,000 annually.
McDermott also highlighted 72 new deals above $1 million in net new annual contract value, up from 63 in the year-ago quarter, and cited strong adoption in manufacturing and healthcare verticals.
Looking ahead, management has made a modest upward revision to its full-year subscription revenue guidance. The company now anticipates subscription revenue between $12.64 billion and $12.68 billion, compared to its earlier projection of $12.635 billion to $12.675 billion. This updated guidance reflects an expected growth rate of between 19% and 19.5%.
What Do Analysts Say About NOW Stock?
Analysts expect the company’s earnings to grow by roughly 20% annually, potentially driving strong returns for shareholders over the next few years as both revenue and profitability compound.
Overall, Wall Street maintains a consensus “Strong Buy” rating on ServiceNow. Of the 37 analysts covering the stock, 29 rate it as a “Strong Buy,” three as a “Moderate Buy,” four as a “Hold,” and one as a “Strong Sell.”
The average 12-month price target of $1,039.69 implies expected upside potential of about 10% from current levels.
Final Words
The Trump administration’s focus on efficiency and the booming demand for AI are creating strong tailwinds for ServiceNow. With a proven presence across federal agencies and consistent double-digit growth in the public sector, ServiceNow is seeing strong momentum.
For investors seeking opportunities in the software sector, ServiceNow’s expanding role in government efficiency initiatives positions it as a compelling “Strong Buy.”
On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
