NOW Stock Earnings Preview: Can AI Sustain ServiceNow’s Success?

ServiceNow [NOW] offers a cloud-based platform for businesses to streamline operations, optimize productivity and, ultimately, reduce the headcount needed to deliver high-quality professional services.

Headquartered in California, the firm operates in all manner of automation- and artificial intelligence-ready (AI) areas, including IT services, customer service and employee management.

NOW stock may well be impacted by the company’s Q4 and FY 2024 earnings call on Wednesday, January 29. What are analysts expecting ahead of the results?

NOW Stock: Recent Performance

NOW’s share price has benefitted from the hype around AI. Back in October 2024 the firm was highlighted in the 2024 Gartner Magic Quadrant, specifically for its use of AI in IT service management.

Indeed, its machine learning and AI features have attracted the interest of many future-focused investors.

This includes some big-name portfolios, including Polen Capital — NOW stock makes up 5.92% of the fund’s investments as of January 27. Ron Baron is another well-known name with an interest in the firm. It is worth noting, however, that Polen has sold shares in the past seven consecutive quarters, and NOW shares make up just 0.21% of Baron’s portfolio.

Fans of Cathie Wood’s work might also be interested to hear that she ditched ARK Invest’s entire stake in NOW back in Q3.

Can NOW Stock Weather the Big-Name Exodus?

So far, it seems it can. NOW has gone from strength to strength over the past year, closing up 49.32% in the 12 months to January 24.

This includes an impressive 78.52% rally from May 30 to December 11’s close. This was followed by an 11.55% dip to January 13, but the stock has since regained its December highs.

The dip towards the end of 2024 was likely due to a challenging macroeconomic environment and general uncertainty, specifically in the run-up to US President Donald Trump’s inauguration. 

That said, the S&P North American Technology Sector Index [SPGSTI] only dipped 4.71% in the same period.

Investors might expect further moves in NOW’s share price following Q4 earnings announcements, but with analysts and traders seemingly split on its potential, does NOW stock have the fundamentals to continue growing?

How is NOW Measuring Up to the Competition?

Atlassian Corp [TEAM] offers a greater variety of products than ServiceNow. Its Jira Service Management offers many similar solutions to ServiceNow, with seamless Atlassian tool integration, as you would expect. 

SolarWinds Corp [SWI] is a US software company focused on business management and IT services. It has integrated AI throughout its product offering in a similar way to ServiceNow.

Source: Yahoo Finance

It is worth noting that all three firms have beaten EPS predictions for the most recent three quarters.

ServiceNow is predicted to have the highest revenue growth; however, it is hard to ignore the outsized P/S ratio of 22.33, higher even than Atlassian’s 15.06. 

NOW Stock: The Investment Case

Despite Cathie Wood and other big-name funds reducing or selling their stakes in NOW, analyst ratings on Yahoo Finance remain optimistic: 11 rate NOW stock a ‘strong buy’, with 25 rating it a ‘buy’.

So, what are the opportunities and headwinds facing the stock?

The Bull Case for NOW Stock

There are certainly some notably positive signs for investors interested in ServiceNow’s potential.

Depending on the specific metrics a trader uses to identify growth stocks, it is possible to view NOW as a growth opportunity.

Estimates of 18.3% EPS growth are almost double the industry average of 9.5%.

ServiceNow is also seeing high cash flow growth predictions, and promising revisions of earnings estimates on current-year earnings.

Zack’s gives the stock a Growth Score B rating. Based on a number of fundamentals, it seems that ServiceNow could be expected to go from strength to strength.

ServiceNow’s partner program is robust, offering a range of attractive incentives to build business together.

Infosys [INFY] and Cognizant [CTSH] have recently been upgraded to the top tier of the partnerships program, showing high potential for business maintenance going forward.

Investors interested in the longevity of the company might take heart from any further developments in this area.

The Bull Case for NOW Stock

The average price target for NOW, as reported by Yahoo Finance, is $1,118.32. With the stock closing January 24 at $1,124.98, the stock may be beginning to look overvalued. The high target of $1,300 offers more leeway, but the low target of $716 might be a warning sign.

In this sense, a lot could be riding on ServiceNow’s Q4 and FY earnings.

AI in customer and IT services is a heavily competitive landscape, populated by some big names in the tech space.

ServiceNow will need a robust pipeline to keep up with the competition. Investors may feel that, at present, there is not enough evidence that it can deliver on that front.

Conclusion

There are some definite challenges facing the stock, and it is not insignificant that big-name investors have distanced themselves from it. 

However, the company has a strong client base, and seems willing to work alongside other firms to continuing to develop the use of AI in the IT and customer service spaces.

Interested investors will be following Wednesday’s results closely.