ServiceNow Stock Slips, But AI Expansion Signals Long-Term Gains

Key Points

• ServiceNow stock is down 11% after issuing weaker-than-hoped guidance in its fourth-quarter earnings report. 
• The company is effectively monetizing AI which will keep growth coming in at over 20% for several years.
• NOW stock is trading around a moving average and could be headed lower, but analysts continue to raise their price targets.  

ServiceNow Inc. NYSE: NOW is down 11% at the end of the week, in which the company delivered its fourth-quarter earnings report. The headline numbers were fine, and revenue of $2.96 billion was 21% higher year-over-year (YoY). However, it was only in line with expectations. Earnings per share of $3.67 beat expectations by one penny ($3.66). Another bright spot came from subscription revenue, which was up 23% YoY. 

But the company’s guidance seemed to spook investors. For example, the company is guiding subscription revenue growth of around 18%- 19% in the coming year. Analysts are weighing a deceleration in growth, no matter how slight, against a stock that looks priced for accelerating growth. 

However, ServiceNow says it lowered its prior guidance to reflect changes in the company’s business model. In the company’s earnings presentation, it remarked that the company “will include our new AI Agents in our Pro Plus and Enterprise Plus SKUs, forgoing upfront incremental new subscriptions to instead drive accelerated adoption and monetize increasing usage over time.” The company also reported it was optimizing aspects of its go-to-market approach and creating more integrated solutions.

AI Will Continue to Drive Growth

ServiceNow is a leading provider of cloud-based software solutions to help businesses streamline their digital workflows and increase productivity. The company is one of the first to include artificial intelligence (AI) and machine learning into its platform. That’s been driving significant revenue and earnings growth. In the fourth quarter, the company’s annual contract value (ACV) from its Generative AI customers grew 150% from the prior quarter. 

However, analysts are a little concerned about the company’s hiring habits. At a time when many of its competitors are freezing hiring as a part of other cost-cutting measures, ServiceNow continues to hire at a brisk pace. 

Could NOW Stock Move Lower?

On January 31, ServiceNow stock was trading at a level of support around the 10-day simple moving average (SMA). During this recent pullback, the stock also sliced through its 50- and 200-day moving averages. Equally worth noting is that the stock’s recent climb to around $1,123 has served as a point of resistance twice in the last 60 days.

Bulls would like to see it hold at this level and start its next move higher. However, several analysts believed NOW stock was priced at a significant premium heading into earnings, even among technology stocks. 

And you don’t have to look back too far to see a time when NOW stock made a 20% downside move from a peak. If that’s the case, the stock could challenge a key support level at $950. Traders will want to watch the MACD readings carefully as they appear to be reversing what was showing bullish momentum. 

Why Investors Should Welcome a Dip

Analysts are still bullish on ServiceNow, with a consensus price target of $1,129.93 as of January 31, 2025. That would give investors an upside of 11%. However, many analysts have started to bid NOW stock higher since its earnings report. Notably, JPMorgan Chase & Co. NYSE: JPM reiterated its Overweight rating on the stock and raised its price target from $950 to $1,250. 

Timing the market is difficult in the best circumstances. The risk for ServiceNow is that the stock will become range-bound. But the long-term outlook for the company’s AI business suggests that it’s a long-term Buy, particularly if the company keeps improving its shareholder equity. This is why the company authorized up to $3 billion in additional shares of common stock under its existing share repurchase program.