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NOW rose 6% after ServiceNow hit its AI contract milestone in the second quarter, while CRM rose 4% after Salesforce closed a $1.6 billion Veterans Affairs Agentforce deal.
Oracle’s $7 billion Pentagon deal adds to a wave of government AI spending; This wave is helping to boost the IGV ETF, which keeps both NOW and CRM at the top.
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Shares of ServiceNow (NYSE:NOW) rose 6% in midday trading Friday, changing hands at $97.36. In the meantime, Salesforce (NYSE:CRM) shares rose 4% to $162.56 as a wave of federal AI deals boosts enterprise software after months of trouble.
Various photographs / iStock Editorial via Getty Images
The bounce comes from a brutal run. ServiceNow stock is down 40% year-to-date (YTD), and Salesforce stock is down 40.5% over the same period. Today’s session reads like an oversold rally with two new name-specific catalysts underneath.
Both companies are at the center of a rotation from AI infrastructure names to application-level software, where AI is finally reflected in recurring revenue rather than pure capital expenditure.
Q2 Beat and Raise from ServiceNow sheds light on the matter
ServiceNow reported second-quarter fiscal 2026 results after the market closed on Wednesday. The company’s subscription revenue increased 24.5% year-over-year to $3.88 billion, and current remaining performance obligations (cRPO) increased 21% to $13.2 billion. Annual AI contract value surpassed $1 billion ahead of schedule, with the number of agent AI production customers increasing ninefold in nine months.
CEO Bill McDermott stated in the press release, “ServiceNow’s exceptional second quarter results solidify our position as the fastest-growing large enterprise software and cybersecurity company.” ServiceNow management increased its subscription revenue guide to at least $15.755 billion in FY26, and security products landed in 16 of the 20 largest deals thanks to Armis, Veza and the AI Control Tower stack.
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Analysts’ reactions were generally aggressive. Research reports from Bernstein (Outperform, $248), Evercore ISI ($160), JPMorgan (Overweight, $150), Cantor ($141), and Jefferies ($140) all raised their price targets on ServiceNow stock. In addition, a fresh one Bank of America (NYSE:BAC) points to an “overlooked AI advantage” with a $130 Buy recommendation in a research report.
The bear case also has weight. UBS cut ServiceNow shares to $110 and neutral, noting that “demand remains mixed.” Notably, ServiceNow’s second quarter also benefited from federal on-premise revenue that was frontloaded from the third quarter, and its third quarter subscription guidance of $3.975 billion to $3.98 billion is below the Street View estimate of $4 billion. Additionally, ServiceNow’s gross margin fell from 81% to 77.9%.
The story continues
Salesforce Closes $1.6 Billion Veterans Affairs Deal
Salesforce won a three-year, $1.6 billion Department of Veterans Affairs agent enterprise licensing agreement, deploying Missionforce, Agentforce Public Sector and Agentforce Health across the agency. The stated goal is to reduce veteran appointment scheduling from 28 days to minutes.
The award builds on the momentum for Salesforce in the first quarter of fiscal 2027. Agentforce ARR reached $1.2 billion, up 205% year-over-year, Agentforce and Data 360 combined ARR reached $3.4 billion, and Public Sector Industry Cloud ARR exceeded $2 billion, up 23% year-over-year. Marc Benioff, CEO of Salesforce, emphasized: “Agentic AI is the greatest growth opportunity for our customers and for Salesforce.”
The bears might counter that Salesforce stock is still trading at a trailing 12-month P/E of 18.85, with overall growth slowing, and that the Informatica integration increases execution risk. Salesforce’s $25 billion accelerated share repurchase program tempered earnings per share, but organic acceleration in the second half of FY27 is now the show-me story.
The software sector is riding the wave of government spending
The rally uplifts the broader group. The iShares Expanded Tech Software Sector ETF (NYSEARCA:IGV) holds both ServiceNow and Salesforce among its top holdings, giving the fund focused exposure in today’s tape. The concentration works both ways, magnifying gains on such days and losses on losses.
oracle (NYSE:ORCL) recently secured a Pentagon software contract worth up to $6.99 billion, reinforcing the industry’s prevailing theme of government AI spending. Federal budget priorities are flowing directly into enterprise software order books, and today’s action suggests investors are willing to pay up again for the commitment.
What you should see now
Investors can pay attention to whether today’s midday gains will last through Friday’s close and whether follow-up analysis will extend the wave of target hikes into next week. The volume and breadth of software names indicate whether it is a permanent rotation or a one-day bottleneck.
Salesforce’s second-quarter fiscal 2027 earnings report is expected in late August, and ServiceNow’s third-quarter lineup has an overhang that management needs to address. Today offers relief to losing holders, but position sizing should reflect that both names are still deep in the red for the year.
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contact editor@247wallst.com for questions or corrections.
https://finance.yahoo.com/technology/ai/articles/servicenow-surges-6-salesforce-climbs-173831058.html
