On Thursday, Canaccord Genuity adjusted its outlook for ServiceNow (NYSE:NOW), increasing the price target to $850 from the previous $835 while maintaining a Buy rating on the stock.
The firm's analyst highlighted ServiceNow's successful performance and the role of AI in driving strategic and larger business engagements. ServiceNow's ability to monetize AI-driven innovations early on was cited as a key factor in the company's success.
ServiceNow's comprehensive platform, which addresses a wide array of unique workflow needs, was recognized as a significant advantage. Additionally, the company's capacity to deliver quick and tangible returns on investment contributes to its strong execution.
The analyst also noted ServiceNow's domain-specific approach to AI, which utilizes customer data and smaller, cost-effective models to achieve better and faster outcomes compared to general-purpose models.
In terms of valuation, ServiceNow's stock was trading after-hours at approximately 38 times enterprise value to free cash flow (EV/FCF) based on calendar year 2025 estimates.
The analyst described ServiceNow as a premium asset that warrants a premium multiple, acknowledging that the shares seem slightly expensive but not unreasonably so. The firm suggested that growth investors should consider having exposure to ServiceNow, especially when the stock's forward FCF multiple falls below 35 times.
Reiterating the Buy rating, Canaccord Genuity expressed confidence in ServiceNow's market position as a leading company in its category. The firm's stance suggests that ServiceNow's integration of AI into its platform is expected to continue to contribute positively to the company's growth trajectory and investment appeal.
In other recent news, ServiceNow outperformed expectations in Q2 2024, reporting substantial growth in subscription revenue, CRPO, and operating margin. The company's Gen AI strategy and the upcoming RaptorDB have seen significant adoption, and leadership changes were announced, highlighting ServiceNow's commitment to compliance and customer satisfaction.
Recent developments include major global collaborations and expansions, such as the largest telecom deal in Canada and new cloud services in the UAE. ServiceNow's subscription revenue and CRPO increased by 23% and 22.5% YoY, respectively, while the operating margin exceeded 27%.
The company also secured 88 deals with over $1 million in net new ACV and announced the acquisition of Raizen to enhance its Gen AI-powered search and knowledge management. Despite uncertainties related to upcoming elections and potential headwinds to CRPO in Q4, ServiceNow remains optimistic about its future growth, raising its full-year guidance.
InvestingPro Insights
As ServiceNow (NYSE:NOW) garners attention with its AI-driven business strategies, real-time metrics from InvestingPro provide a detailed financial snapshot of the company. With a robust gross profit margin of 78.87% over the last twelve months as of Q1 2024, ServiceNow showcases its efficiency in generating revenue relative to the cost of goods sold. This impressive margin aligns with Canaccord Genuity's positive outlook on the company's ability to monetize AI innovations.
The stock's high Price / Book multiple of 18.52 suggests that investors are willing to pay a premium for ServiceNow's assets, reflecting confidence in the company's future growth prospects. Additionally, the PEG ratio of 0.21 indicates that the stock may be undervalued relative to its earnings growth potential, which supports the analyst's view of ServiceNow as a premium asset with a compelling valuation for growth investors.
For those looking to delve deeper into ServiceNow's financial health and market potential, InvestingPro offers additional insights, including tips such as the company's moderate level of debt and its capacity to cover interest payments comfortably. With these financial metrics in mind, investors can make more informed decisions. For a comprehensive analysis, consider exploring the full range of InvestingPro Tips available at https://www.investing.com/pro/NOW. To enhance your investing toolkit, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. Currently, there are over 10 additional InvestingPro Tips that could further inform investment decisions regarding ServiceNow.
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