ServiceNow (NYSE:NOW), the cloud computing and software company that makes tools to automate other companies’ technology operations, has a powerful platform that stands to benefit from continued integration of AI. It is unveiling new suites of products to expand its customer base and is making strategic moves into specific industries and locations that are primed for targeting. Finally, it is exceeding its own guidance with notable top- and bottom-line growth in recent months.
All of these factors combine to make NOW shares a noteworthy potential investment. Analysts across many different Wall Street firms have taken note of ServiceNow in the last several weeks, particularly since the company posted better-than-expected results in its late-April first-quarter financial report.
I see NOW as a possible leader in the integration of generative AI into workflow and operations management and agree with optimistic assessments from the Street. Below, I break down some of the factors making NOW worthy of consideration.
ServiceNow Is Primed for AI Benefits
ServiceNow’s offerings are poised to see tremendous boosts in functionality and popularity from continued AI integration. The company has unveiled a number of new AI-linked functionalities and products in recent weeks. These include an expansion of its Now Assist portfolio to include generative AI and a partnership with Microsoft (NASDAQ:MSFT) to bring together two AI-based assistants into a single enterprise experience.
One factor that helps ServiceNow stand out among the countless firms seeking to adopt AI technology into their pre-existing operations is that ServiceNow provides products with a bring-your-own generative AI capability. This allows ServiceNow customers to use the company’s tools to better power their own AI development. Of course, this is also in addition to the ways that ServiceNow can use AI to bolster its own offerings.
Given that businesses worldwide are expected to spend more than $150 billion by 2027 on integrating generative AI into their offerings, ServiceNow stands to gain both from its own use of AI and from other companies’ efforts to use AI as well.
New Products Reach New End Users
Earlier this month, ServiceNow announced new solutions in its Now Platform aimed at improving employee productivity and satisfaction and reducing costs. This is one of many updates and new products that analysts like Arjun Bhatia of William Blair view as key to driving an increase in customers.
Besides courting new customers with fresh products, ServiceNow is being deliberate about expanding its reach into industries, such as manufacturing, that have the potential to boost its base. The company is also opening offices and pursuing investments and partnerships in regions poised for growth.
Solidly Outperforming Earnings Expectations
All of this concerted effort to broaden its reach is reflected in ServiceNow’s recent first-quarter earnings report. The company posted subscription revenues for the quarter of $2.5 billion, a full 25% higher than the figure a year prior. Total revenues of $2.6 billion were a 24% increase year-over-year.
The firm also achieved income from operations of $332 million in the first quarter, for a margin of 13%, and generated free cash flow of $1.2 billion. This helps ensure that as the company continues to build its base and bulk up its product offerings, it is well-positioned to reap the rewards and invest in future growth.
ServiceNow anticipates that this trajectory will continue this quarter and through the end of the year. The company forecasts second-quarter subscription revenues to climb by 21.5% to 22% year-over-year and full-year subscription revenues to grow at the same rate, reaching as high as $10.6 billion for all of 2024.
Is NOW Stock a Buy, According to Analysts?
Despite the fact that NOW shares have risen by 61% in the last year, Wall Street analysts have rated the stock a Strong Buy based on 28 Buy ratings, two Holds, and zero Sells. The average NOW stock price target is $866.27, representing 14.9% upside potential.
Conclusion: Excellent AI Positioning and Successful Efforts to Grow
ServiceNow uniquely stands to gain from the widespread shift toward AI technology across various industries and is already successful in expanding its reach thoughtfully. It’s no surprise, then, that analysts believe this company is a strong prospect for retail investors.
