ServiceNow (NOW Quick QuoteNOW - Free Report) shares have declined 10% in the past month due to a challenging macroeconomic environment. We believe the dip offers a massive buying opportunity, given NOW’s strong Generative AI (GenAI) portfolio, expanding clientele and rich partner base.

These have been the key catalysts that helped the ServiceNow shares return 39.3% over the trailing 12-month period, outperforming both the Zacks Computer & Technology sector and the Zacks Computers – IT Services industry’s appreciation of 30.4% and 9.7%, respectively.

The strong portfolio is helping NOW win clients regularly. Exiting third-quarter 2024, ServiceNow had 2,020 total customers with more than $1 million in annual contract value (ACV). 

NOW had 15 deals greater than $5 million in net new ACV and six deals of more than $10 million in the third quarter of 2024. It closed 96 deals greater than $1 million in net new ACV. The number of customers contributing more than $20 million or more grew nearly 40% year over year.

NOW Stock Dips in a Month

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Technically, ServiceNow shares are displaying a bullish trend as it trades above the 200-day moving average.

NOW Trades Above 200-day SMA

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NOW’s Expanding Portfolio Boosts Prospects

ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. NOW’s expanding Gen AI capabilities are noteworthy, as its total addressable market is expected to hit $275 billion in 2026.

Gen AI deals continued to gain traction in the third quarter of 2024. ServiceNow had 44 new Now Assist customers spending more than $1 million in ACV, including six with more than $5 million and two with more than $10 million. NOW has also been successful in monetizing its Gen AI offerings, realizing price increases of roughly 30%. 

Continued innovation has been a major driver. ServiceNow’s latest update, Xanadu, offers AI-powered, purpose-built industry solutions for domains, including telecom, media, and technology, financial services and the public sector. 

The Xanadu update adds the latest AI capabilities to boost customer agility, enhance productivity and improve employee experiences. It expands the GenAI portfolio to enterprise functions, including Security, and Sourcing & Procurement Operations.

NOW plans to integrate Agentic AI into the ServiceNow platform and unlock 24/7 productivity at a massive scale. This service, available this November for Customer Service Management AI Agents and IT Service Management AI Agents, is expected to reduce the time to resolve an issue and make live agents more productive. 

ServiceNow is adding GenAI and governance innovations to the Now platform to foster responsible AI. NOW is adding more than 150 GenAI innovations to its portfolio, including new, expanded Now Assist capabilities with an AI Governance feature for secure and compliant AI practices.

Rich Partner Base Bolsters NOW’s Prospects

Amazon (AMZN Quick QuoteAMZN - Free Report) , Microsoft (MSFT Quick QuoteMSFT - Free Report) and NVIDIA (NVDA Quick QuoteNVDA - Free Report) are major partners of ServiceNow. Apart from these, ServiceNow has inked several other partnership deals with Five9, Visa, Snowflake, Zoom, Siemens, Rimini Street, IBM, Genesys, Fujitsu, Equinix, Boomi and Infosys, which are expected to boost its growing market share.

ServiceNow and Amazon Web Services recently announced an expanded strategic collaboration with new capabilities to accelerate AI-driven business transformation. The companies are connecting Amazon Bedrock models to ServiceNow, which will help enterprises boost the development and deployment of GenAI solutions.

NOW inked an expanded partnership with Microsoft to modernize front-office business processes with a Microsoft Copilot and ServiceNow AI agent collaboration. The much anticipated Now Assist integration with Microsoft Copilot for Microsoft 365 is generally available with the Xanadu update. 

NVIDIA and NOW are collaborating to develop out-of-the-box use cases for AI agents on the Now platform using NVIDIA NIM Agent Blueprints.

NOW’s Earnings Estimate Shows Upward Trend

The Zacks Consensus Estimate for 2025 earnings is pegged at $16.42 per share, up a couple of cents over the past 30 days, indicating an 18.42% year-over-year increase.

NOW’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 9.46%.
 

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The consensus mark for 2025 revenues is pegged at $13.19 billion, suggesting growth of 20.10% over the 2024’s estimated figure of $10.98 billion.

NOW’s Strong Prospects Justify Premium Valuation

ServiceNow stock is trading at a premium, as suggested by the Value Score of F.

In terms of the forward 12-month Price/Sales, NOW is trading at 15.74X, higher than its median of 14.02X and the sector’s 6.98X.

Price/Sales Ratio (F12M)

Image Source: Zacks Investment Research

ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its clientele, boosting subscription revenues. Hence, we believe the premium valuation is justified.

ServiceNow currently has a Zacks Rank #1 (Strong Buy) and a Growth Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank stocks here.