Equities
ServiceNow introduces AI product tier, projecting $1 billion to $2.5 billion revenue boost but with gradual impact on sales.
By Athena Xu
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ServiceNow Inc. has introduced a new generative AI-focused product tier, signaling a strategic move towards integrating advanced artificial intelligence into its offerings. Chief Financial Officer Gina Mastantuono highlighted the potential for significant revenue growth from this initiative, estimating an incremental revenue of $1 billion to $2.5 billion from current users upgrading to the AI-enhanced tier. However, she noted that the impact on the company's top line might take some time to materialize, without providing a specific timeline for these expectations. The company, headquartered in Santa Clara, California, develops applications to help businesses automate their personnel and IT operations. This new AI-oriented product tier, which was launched late the previous year, has been identified by Chief Executive Officer Bill McDermott as ServiceNow’s fastest-growing product to date.
Investors and market analysts had been keenly awaiting updates on the adoption rate of ServiceNow's AI-focused product tier, especially in the wake of the company's recent earnings report. There was a general consensus among analysts for more detailed information regarding the financial implications of this new product tier. The broader software industry has seen numerous companies heralding the revenue potential of generative AI tools, yet detailed financial disclosures have been sparse. For context, Amazon.com Inc. reported that AI contributed a significant portion to its cloud division's annual run rate, while International Business Machines Corp. (IBM) disclosed over $1 billion in business for its AI segment since mid-2023.
ServiceNow reaffirmed its 2026 sales forecast, aiming for $15 billion in subscription revenue, a figure slightly below the average analyst estimate of $15.5 billion, as compiled by Bloomberg. Following these announcements, ServiceNow's stock showed minimal movement in extended trading, maintaining a position that reflects a modest year-to-date gain of 2.8%. This performance is in contrast to the 6.3% rise observed in the S&P 500 Software Index, indicating a cautious market response to the company's long-term financial outlook and its strategic emphasis on AI.
Gina Mastantuono, CFO of ServiceNow:
"While it might take some time to have a material impact to the top line, the opportunity is massive."
Bill McDermott, CEO of ServiceNow:
"The new AI-oriented tier, released late last year, is ServiceNow’s fastest-growing product ever."
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