Truist upgrades ServiceNow to Buy on platform advantage, leading AI position

Investing.com -- Truist analysts lifted their rating on ServiceNow (NYSE:NOW) shares to Buy from Hold on Thursday as they expect the company to “continue to consolidate the enterprise IT stack,” taking advantage of AI and macro uncertainty to reinforce its positioning relative to peers.

The company’s shares rose nearly 3% in premarket trading.

The brokerage also lifted the price target on the stock from $950 to $1,200, which implies more than 25% from the last closing price.

Truist believes ServiceNow’s platform architecture will continue delivering compounding gains across all operating segments.

During periods of rising market uncertainty, the firm’s analysts see ServiceNow benefiting as a key strategic technology partner, aiding customer consolidation efforts.

“Additionally, as new technologies come to market, incumbent vendors typically receive preference from IT buyers,” analysts led by Joel P. Fishbein Jr. added.

“The increasing breadth of the NOW offering into established verticals, like CRM, and emerging ones, like agentic AI, have potential to support durable growth, and we see their go-to-market (GTM) execution track record as the gold standard in our coverage,” they added.

The analysts also highlight ServiceNow’s leading position in the AI space, noting that industry feedback over the last year indicates a trend towards purchasing pre-built AI tools rather than developing in-house solutions.

ServiceNow’s traction with the Pro Plus SKU is seen as an early indicator of this momentum, which is expected to build further. The company’s strong connectivity within IT organizations and growing use cases with knowledge workers position it favorably for AI buildouts.

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Truist also touched on ServiceNow’s federal business segment, estimating it to comprise approximately 9% of annual contract value (ACV).

Despite potential risks associated with the Department of Defense’s Global Employment of the Force (DOGE) on the federal business, the brokerage believes ServiceNow has taken adequate steps to de-risk their guidance for the year by excluding federal net new annual contract value (NNACV) growth from their model.

Despite ServiceNow’s premium valuation, trading at 15x FY25 revenue, Truist justifies the premium based on the company’s prospects as a generational compounder in enterprise software.

The firm’s forecast that ServiceNow can grow its top line by high-teens percentage points over the next five years, and its sustained premium to other infrastructure software companies, support the raised price target.

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