By Christine Ji and Emily Bary

'The attack surface is exploding,' CEO Bill McDermott tells MarketWatch

ServiceNow shares have been under pressure this year.

Against a gloomy backdrop for software sentiment, ServiceNow just topped revenue expectations.

The company generated $3.877 billion in subscription revenue during the second quarter, up 24.5% from a year earlier and ahead of the $3.817 billion FactSet analyst consensus. ServiceNow said it had seen a "ninefold" increase in agentic deployments of its AI offerings over the course of nine months.

"This agentic enterprise is being led by ServiceNow from workflow to cybersecurity," CEO Bill McDermott told MarketWatch.

Cybersecurity has been a key growth driver for ServiceNow, which recently acquired cybersecurity firms Armis and Veza. The company currently manages over 7 billion devices in real time.

ServiceNow's stock (NOW) rose 4.7% in after-hours trading Wednesday.

Management's outlook for third-quarter subscription revenue came in at $3.975 billion to $3.98 billion, though analysts tracked by FactSet were modeling $4.01 billion. McDermott noted that the company overachieved in the second quarter with some federal deals, but was still raising its full-year forecast.

ServiceNow projects a 31% third-quarter operating margin, up from 29.5% in the second quarter.

"We're running a tight ship here," McDermott said, adding that ServiceNow has kept its head count flat and saved $1 billion in costs by using its autonomous workflow tools internally. "I'm able to take out a billion in real cost and reinvest it into innovation," he added.

ServiceNow also lifted its full-year forecast for subscription revenue, which now calls for $15.76 billion to $15.78 billion. Its old outlook was for $15.735 billion to $15.775 billion.

The company reported $29 billion in remaining performance obligations, a measure of contracted business yet to be recognized as revenue. That was slightly ahead of the $28.8 billion consensus view and "fueled by longer customer commitments and skyrocketing demand from our partner ecosystem," McDermott said in a press release.

Software stocks in general have taken a beating this year on concerns about AI disruption. ServiceNow's stock has been a poster child for the selloff, falling 37% on a year-to-date basis through Wednesday's close.

ServiceNow's management has maintained that the company isn't at risk of AI displacement because it gives enterprise customers a mission-critical platform for managing different business procedures. The company's AI Control Tower allows customers to map and govern their AI agents across different cloud and IT systems.

In addition to orchestrating different AI models, the AI Control Tower is now increasingly serving as a gateway to vet nonhuman identities. ServiceNow anticipates that over 2.2 billion agents will participate in the global economy in coming years, all of which will need to be tracked and regulated.

"The attack surface is exploding. Every ungoverned asset and identity is multiplying the blast radius of AI exponentially," McDermott told MarketWatch. "We're building the world's most integrated end to end security platform."

-Christine Ji -Emily Bary

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(END) Dow Jones Newswires

07-22-26 2018ET