Shares of ServiceNow (NYSE:NOW | NOW Price Prediction) are up 6% in Friday midday trading, changing hands at $97.36. Meanwhile, Salesforce (NYSE:CRM) stock is climbing 4% to $162.56 as a wave of federal AI deal flow lifts enterprise software after months of pain.
The bounce comes off a brutal run. ServiceNow stock is down 40% year to date (YTD), and Salesforce shares have shed 40.5% over the same span. Today’s session reads as an oversold rebound with two fresh, name-specific catalysts underneath it.
Both companies sit at the center of a rotation from AI infrastructure names back into application-layer software, where AI is finally translating into recurring revenue rather than raw capex.
ServiceNow’s Q2 Beat and Raise Lights the Fuse
ServiceNow reported Q2 FY2026 results Wednesday after the close. The company’s subscription revenue climbed 24.5% to $3.88 billion year over year (YoY), and current remaining performance obligations (cRPO) rose 21% to $13.2 billion. AI annual contract value crossed $1 billion ahead of schedule, with agentic-AI production customers up ninefold in nine months.
CEO Bill McDermott stated in the release, “ServiceNow’s exceptional Q2 results solidify our position as the fastest-growing major enterprise software and cybersecurity company.” ServiceNow’s management raised its FY26 subscription revenue guide to at least $15.755 billion, and security products landed in 16 of the 20 largest deals thanks to Armis, Veza, and the AI Control Tower stack.
Analysts’ reactions have been aggressive overall. Research reports from Bernstein (Outperform, $248), Evercore ISI ($160), JPMorgan (Overweight, $150), Cantor ($141), and Jefferies ($140) all lifted their ServiceNow stock price targets. Moreover, a fresh Bank of America (NYSE:BAC) research note flagged an “overlooked AI advantage” at a $130 Buy rating.
The bear case has weight, too. UBS cut ServiceNow stock to $110 and Neutral, noting that “demand remains mixed.” Notably, ServiceNow’s Q2 also benefited from federal on-premise revenue pulled forward from Q3, and the Q3 subscription guide of $3.975 to $3.98 billion sits below the $4 billion Street view. Additionally, ServiceNow’s gross margin slipped to 77.9% from 81%.
Salesforce Lands $1.6 Billion Veterans Affairs Deal
Salesforce won a $1.6 billion, three-year Department of Veterans Affairs Agentic Enterprise License Agreement, deploying Missionforce, Agentforce Public Sector, and Agentforce Health across the agency. The stated goal is cutting veteran appointment scheduling from 28 days to minutes.
The award builds on Q1 FY2027 momentum for Salesforce. Agentforce ARR reached $1.2 billion, up 205% YoY, combined Agentforce and Data 360 ARR hit $3.4 billion, and Public Sector Industry Cloud ARR surpassed $2 billion, up 23% YoY. Salesforce CEO Marc Benioff emphasized, “Agentic AI is the biggest growth opportunity for our customers, and for Salesforce.”
The bears may counter that Salesforce stock still trades at a trailing 12-month P/E ratio of 18.85x with decelerating headline growth, and that the Informatica integration adds execution risk. Salesforce’s $25 billion accelerated share repurchase program has cushioned EPS, but organic acceleration in H2 FY27 is now the show-me story.
Software Sector Rides the Government Spending Wave
The rally lifts the broader group. The iShares Expanded Tech-Software Sector ETF (NYSEARCA:IGV) holds both ServiceNow and Salesforce among its top positions, giving the fund concentrated exposure to today’s tape. Concentration cuts both ways, amplifying gains on days like this and losses on drawdowns.
Oracle (NYSE:ORCL) recently secured an up-to-$6.99 billion Pentagon software deal, reinforcing the government-AI-spend theme running through the sector. Federal budget priorities are flowing directly into enterprise software order books, and today’s action suggests that investors are willing to pay for exposure again.
What to Watch Now
Investors can watch for whether today’s midday gains hold into the Friday close and whether follow-through research notes extend the target-hike wave into next week. Volume and breadth across software names will signal whether this is a durable rotation or a one-day squeeze.
Salesforce’s Q2 FY2027 earnings report is expected in late August, and ServiceNow’s Q3 setup carries a pull-forward overhang that management will need to address. For beaten-down holders, today offers relief, but position sizing should reflect that both names are still deep in the red for the year.
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