By ServiceNow Inc. (NYSE: NOW) saw a 2% increase in its stock price on October 8 after UBS analyst Karl Keirstead raised the company’s price target to $1,055 from $900.
This new target is the highest on Wall Street and suggests a potential upside of 14.4%.
Keirstead’s optimism comes after discussions with three of ServiceNow’s partners, including two of its largest.
These partners reported results that significantly exceeded their growth targets, with one noting a broader cyclical recovery in demand that began over the summer.
ServiceNow stock: mixed analyst ratings
While UBS’s stance is bullish, not all analysts share the same view.
Guggenheim recently raised its price target on ServiceNow to $716 from $640 but maintained a Sell rating.
The firm acknowledged that if ServiceNow continues its current momentum, it could meet upcoming earnings estimates.
However, Guggenheim expressed concerns about the ongoing US Department of Justice investigation into Carahsoft, a key government reseller for ServiceNow.
This investigation could impact ServiceNow’s shares until more clarity is provided.
Similarly, Piper Sandler warned that the FBI raid on Carahsoft’s headquarters might introduce volatility for ServiceNow’s stock, given that a significant portion of its federal contracts is funneled through Carahsoft.
While firms like Stifel and Piper Sandler have increased their price targets to $900 and $850 respectively, acknowledging ServiceNow’s consistent execution and AI advancements, some analysts remain cautious.
Concerns revolve around the sustainability of the company’s high valuation multiples in the face of potential growth deceleration and external market factors.
The stock currently trades at over 19 times sales, a premium that may be hard to justify if market conditions change.
ServiceNow: strong Q2 results and AI momentum
Despite these concerns, ServiceNow delivered impressive second-quarter results, showcasing a 22% year-over-year revenue growth to $2.627 billion and adjusted earnings per share of $3.13, surpassing analyst expectations.
The company attributed part of this success to its generative artificial intelligence (AI) offerings.
CEO Bill McDermott highlighted substantial deals with major corporations like American Honda, Stellantis, Merck, Adobe, Dell, and STMicroelectronics, emphasizing that “Gen AI momentum is real and continues to build.”
Looking ahead, ServiceNow is scheduled to release its third-quarter financial results on October 23.
Analysts predict adjusted earnings per share of $3.45 on revenue of $2.75 billion.
The company has raised its full-year revenue outlook to a range of $10.575 billion to $10.585 billion, representing a 22% year-over-year increase.
For the third quarter, subscription revenue is expected to be between $2.66 billion and $2.67 billion.
The company continues to focus on expanding its platform and capitalizing on the growing demand for AI-driven solutions.
Leadership changes at ServiceNow
The unexpected departure of COO and President CJ Desai, due to a hiring decision that conflicted with company policy, was a notable event.
However, analysts observed that ServiceNow’s management addressed the issue transparently, and the transition appears to be seamless with long-time executive Chris Bedi stepping in as interim Chief Product Officer.
The company remains committed to innovation and customer-centric solutions.
As ServiceNow navigates through these developments, investors are weighing the company’s strong fundamentals against the risks associated with its valuation and the Carahsoft investigation.
Given the various factors influencing ServiceNow’s stock, including analyst ratings, financial performance, and market conditions, evaluating technical indicators could provide additional insights into its future trajectory.
A closer examination of chart patterns and market trends may help investors make more informed decisions about their positions in the company.
ServiceNow stock: long-term bull run intact
ServiceNow’s stock has seen a very strong rally since the start of 2023 that has taken it from $400 to currently above $900.
Source: TradingView
Despite minor hiccups in between, the rally lasts to this day and the stock is extremely stock on the long-term charts.
Recently, it has been facing some resistance near the $945 level but it could be just another minor hiccup.
Hence investors and traders who want to initiate fresh long positions can start with a small position at current levels near $920 and add to it once the stock gives a daily closing above $945.
Traders who feel the stock is ripe for a retracement also have a low-risk high-reward trade on their hands right now.
They can initiate a short position at current levels with a stop loss at $948. If the stock indeed retraces, it will find its first support near the $746 level where profits can be booked.
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