ServiceNow Benefits From Material AI Contribution, Analyst Predicts Solid Q4 Results

Goldman Sachs analyst Kash Rangan reiterated a Buy rating on the shares of ServiceNow Inc NOW with a price forecast of $1,200.

The analyst continues to view the company as a top-tier software leader with sustainable 20% growth potential, supported by a Rule of 50+ profile, as noted in the 2025 outlook.

The analyst expects the company to report Subscription Revenue growth of at least +21.7% in USD/CC, matching consensus, and cRPO growth of +21.5% in USD/CC, versus the consensus estimate of 21.4%.

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The stock has risen by 24% since the release of the third-quarter FY24 earnings, outperforming the NASDAQ’s 9% gain, reflecting investor optimism driven by consistent beat-and-raise results, increasing Gen-AI revenue, and strong go-to-market execution.

Notable metrics include 96 deals worth over $1 million (up 16% YoY) and 6 deals surpassing $10 million, compared to 4 in the second quarter, said the analyst.

According to the analyst, further growth will be supported by cRPO growth and accelerating RPO growth, creating a strong foundation for sustained expansion, AI contributing an additional 2 percentage points of growth in FY24, with further momentum expected as AI agents are introduced and investors respond positively to AI contributions, and solid execution across multiple products, with 18 of the top 20 deals including 7+ products, supporting a diversified growth trajectory.

Despite the recent strength of the dollar, the analyst estimates only a 20 basis points FX benefit to fourth-quarter cRPO and revenue, compared to the 120 basis points benefit initially forecasted, and a potential 110 basis points/~$120 million FX impact on FY25 growth.

In the analyst’s opinion, ServiceNow has the potential to be a resilient business, even during an economic downturn. The company offers a distinct mix of IT service management and operations, which together make up approximately 70-75% of its revenue.

This core offering can be considered defensive, especially as IT departments become more influential amidst tighter budgets.

The remaining portion of ServiceNow’s portfolio, focused on employee, customer, and creator workflows, is more aggressive in its growth strategy, positioning the company to capture additional market share.

Despite potential macroeconomic challenges in the short term, the company’s long-term growth outlook remains strong, with a potential to reach $35 billion in revenue and achieve margins above 40%, noted the analyst.

Price Action: NOW shares are trading higher by 0.94% at $1,135.55 at the last check Monday.

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