ServiceNow (NOW 0.85%) has quietly been one of the best-performing stocks of the past decade, gaining more than 1,300% during that span. That momentum has continued this year with the stock up about 35% in 2024.

Meanwhile, investors recently cheered the company's third-quarter earnings results. Let's take a closer look at those results to see if the stock can continue its momentum.

An AI software winner

For those unfamiliar with ServiceNow, it's a software-as-a-subscription (SaaS) company whose platform allows customers to connect and bring together siloed systems to better manage workflows. It originally started out in the IT service management (ITSM) market to help IT departments manage their networks, but it has since moved into other areas such customer service and human resources. It also has a platform for such things as automation and procurement. 

The company has been an early software leader in artificial intelligence (AI), with its Now Assist AI the fastest-growing solution in company history. However, it still thinks the best days are ahead of it, and it just made its biggest generative AI release to date in Xanadu, which can do such things as assist with analytics generation, custom skills development, and Microsoft Copilot integration. It is also moving into agentic AI, which can solve problems and complete tasks autonomously. ServiceNow has consistently put up strong revenue growth, and that continued in Q3, with revenue rising 22% to $2.8 billion.

That topped the average estimate of $2.75 billion, as compiled by FactSet. Subscription revenue jumped 23% to $2.7 billion. Professional services revenue rose 14% to $82 million. Adjusted earnings per share (EPS) of $3.72, meanwhile, easily beat average analyst estimates of $3.45. The company ended the quarter with 2,020 customers with net annual contract value (ACV) of $1 million or more, an increase of 14%. The average ACV of these customers, meanwhile, rose to $4.8 million compared to $4.4 million a year ago, a 9% increase.

This shows it is both adding more large customers and seeing the size of these customers grow. One metric investors like to follow with ServiceNow is RPO growth, which is deferred revenue plus backlog growth. This can be an indication of future revenue growth. In the quarter, the company saw RPO rise 26% to $19.5 billion, while current RPO (cRPO) jumped 23.5% to $9.4 billion.

This indicates that revenue growth of more than 20% should continue. Turning to the balance sheet, the company ended the quarter with $9.1 billion in cash and investments and $1.5 billion in debt. Looking ahead, ServiceNow forecast fourth-quarter subscription revenue to grow between 21.5% and 22%.

It is expecting cRPO to rise by 21.5%. For the full year, the company projected subscription revenue of $10.655 billion to $10.660 billion, representing growth of 23%. That's up from a prior outlook for subscription revenue to increase 22%.

Image source: Getty Images

Can ServiceNow stock's momentum continue

If software becomes the next big AI category winner for stocks, ServiceNow looks well positioned to be one of the companies leading the way. It is moving from generative AI to agentic AI, which Nvidia has called the next frontier in AI. Meanwhile, the company believes it has a strong first-mover advantage in generative AI.

ServiceNow's goal is to help improve productivity through AI, which is something organizations are always looking to do to save time and money, and they are certainly willing to spend to achieve this. This should set up the company for continued and sustained growth.

From a valuation perspective, the stock now trades at a forward price-to-sales multiple of about 15 based on 2025 analyst estimates. Its multiple has now about doubled over the past two years.

NOW PS Ratio (Forward 1y) data by YCharts

If ServiceNow can take advantage of the AI opportunity in front of it, it can more than grow into its current valuation. However, such a high valuation also leaves less room for error. As such, I'd probably try to keep positions in the stock on the smaller side at the moment.