Why Is ServiceNow (NOW) Stock Soaring Today

Radek Strnad /
2024/02/22 11:21 am EST

What Happened:

Shares of enterprise workflow software maker ServiceNow (NYSE:NOW) jumped 5.6% in the morning session as chip and AI stocks surged alongside broader market gains, with the Nasdaq rising by 2.1%, the S&P 500 by 1.5%, and the Dow gaining 0.57% following Nvidia's outstanding earnings results. During its Q4'2024 earnings, Nvidia reported impressive topline results (7.6% revenue beat), big gross margin improvement, and EPS outperformance vs. Wall Street's estimates. Notably, revenue grew 265% year-on-year and 22% sequentially during the quarter. The strong topline performance was mostly driven by the data center segment, which was up 409% year-over-year and 27% sequentially as demand for Nvidia processors optimized for generative AI, LLMs (large language models), and other AI workloads continued to accelerate. The company estimated that roughly 40% of Data Center revenue was driven by AI-related applications. 

Guidance for the next quarter was also good, with revenue, gross margin, and implied operating profit coming in ahead of expectations. Overall, Nvidia's strong performance during the quarter highlighted the growing demand for AI-related technology and demonstrated the abundant growth opportunity for innovators within the space. After the initial pop the shares cooled down to $776.27, up 3.8% from previous close.

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What is the market telling us:

ServiceNow's shares are quite volatile and over the last year have had 4 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 9 months ago, when the stock gained 5.2% on the news that the company announced its first-ever share buyback program during its investor day session. The program enabled the purchase of up to $1.5 billion in shares of common stock. Management added that "given the current macro environment and our strong cash flow generation, we believe that using a portion of our free cash flow to manage dilution is a strategic use of capital. This program reflects our conviction in the trajectory of our business and our commitment to driving exceptional shareholder value."

ServiceNow is up 12.9% since the beginning of the year, and at $776.27 per share it is trading close to its 52-week high of $812.94 from February 2024. Investors who bought $1,000 worth of ServiceNow's shares 5 years ago would now be looking at an investment worth $3,303.

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