Bank of America sees ServiceNow (NOW.US) rising to $130: promising growth prospects expected to benefit from the AI wave.

Bank of America Corp has resumed coverage of ServiceNow (NOW.US) and has given it a "buy" rating with a target price of $130. Analysts believe that while artificial intelligence (AI) is reshaping the software industry, ServiceNow is likely to be a beneficiary of the AI trend rather than being replaced by it. Analyst Tal Liani wrote in a client report, "Although AI is reshaping the software industry, we believe that ServiceNow will benefit from new AI solutions rather than be replaced by them." "The company's current position is very strong, with a deep embedded and crucial position in enterprise workflows, serving as a management, routing, approval, and audit system for activities within the entire organization, making replacing its systems costly and complex. Its leading position may turn the 'agent AI' cycle into a new growth driver. We believe that ServiceNow's depth and breadth in the workflow system will allow it to significantly benefit from deploying autonomous intelligent agents in IT, employee, and customer workflows." The analyst further pointed out that ServiceNow is expected to maintain revenue growth between 18% to 22% and free cash flow profit margins between 35% to 37% from now to 2028, driven by platform expansion, increased budget acquisition capabilities, and AI commercialization. The analyst added, "It is worth noting that the company's current remaining performance obligations (cRPO) growth rate has exceeded 20% for five consecutive quarters, highlighting continued strong demand and the importance of the platform." "Management expects operating profit margins and free cash flow profit margins to increase by around 100 basis points by 2027, even with continued investments in AI, demonstrating operational leverage expansion. Currently, the stock is valued at around 14 times the expected enterprise value/free cash flow (EV/FCF) for 2027, which we find attractive as compared to peers, with faster growth and stronger profitability." ServiceNow reported better-than-expected first-quarter results last month and raised its full-year guidance. However, the company noted that subscription revenue growth was impacted by conflicts in the Middle East. The financial report showed first-quarter revenue grew by 22% year-on-year to $3.77 billion, slightly higher than the analyst's average estimate of $3.74 billion. By business segment, subscription revenue grew by 22% to $3.671 billion, while professional services and other revenue grew by 18.5% to $99 million. Profit-wise, net income was $469 million, with adjusted earnings per share of $0.97, slightly higher than the analyst's average estimate of $0.96. ServiceNow stated that first-quarter subscription revenue growth was "negatively impacted by approximately 75 basis points due to ongoing conflicts in the Middle East delaying the signing of several large local deployment projects." Nonetheless, the company raised its 2026 fiscal year subscription revenue guidance to $15.74 billion to $15.78 billion, up from the previous range of $15.53 billion to $15.57 billion. The company's second-quarter subscription revenue guidance range is $3.815 billion to $3.82 billion, a year-on-year increase of approximately 22.5%, higher than the analyst's average estimate of $3.75 billion. ServiceNow reported that first-quarter remaining performance obligations (CRPO) reached $12.64 billion, higher than the market's expected $12.56 billion. The company completed 16 new transactions worth over $5 million annually in the first quarter, a nearly 80% increase year-on-year. In terms of its AI business, the company's AI assistant product Now Assist saw a year-on-year increase of over 130% in the number of customers with an annual contract value (ACV) exceeding $1 million, which management sees as a significant signal of the platform's accelerated AI monetization capability. ServiceNow Chairman and CEO Bill McDermott stated in the performance announcement that customers are using the company's platform as a "AI control tower for business transformation" and emphasized that AI business growth has "exceeded the company's own expectations."