ServiceNow Faces 25% Drop But Analyst Predicts 82% Rally
ServiceNow (NYSE:NOW) has seen its stock price drop 25.41% over the past year, mirroring a broader decline in software stocks. Despite this, Bernstein analyst Peter Weed has set a Street-high target price of $248.00, suggesting an 82% upside from its current trading price of $136.11. Weed's optimism is driven by the potential of generative AI to enhance ServiceNow's enterprise workflow and AI orchestration software, which management describes as the “AI Control Tower for business reinvention.”
The company's recent financial performance has been mixed. Second-quarter operating income fell 54.75% year over year to $162 million, and GAAP subscription gross margin dropped to 73.5% from 80%. These declines were attributed to amortization from recent acquisitions, rising stock-based compensation, and business-combination costs. However, ServiceNow's AI annual contract value recently surpassed $1 billion, supporting bullish sentiments among analysts.
Of the 49 analysts covering ServiceNow, 10 assign the top rating, 35 recommend buying, 2 say hold, 1 say sell, and 1 assign the lowest rating. The consensus target price of $144.99 implies a modest 6.5% upside. Comparatively, Salesforce (NYSE:CRM) and Workday (NASDAQ:WDAY) also faced declines but show more consensus upside than ServiceNow. Salesforce has about 23.3% implied upside, while Workday has 10.2%.
The outlook for ServiceNow hinges on its ability to leverage generative AI and improve operating margins. Management aims for $30.00 billion or more in subscription revenue by 2030, with AI making up 30% of ACV. While risks include integration costs and potential federal revenue delays, the stock's current valuation at 28x forward earnings presents a compelling case for further research.