IBD Stock Analysis
- ServiceNow stock has formed a cup-with-handle base with 607.90 buy point
- NOW shares are rebounding off their 50-day line after Friday’s selloff
- ServiceNow is on four IBD stock lists
Industry Group Ranking
Cup with Handle
* Not real-time data. All data shown was captured at
1:42PM EDT on
ServiceNow (NOW) is the IBD Stock Of The Day as the enterprise software maker rides the wave of corporate interest in generative artificial intelligence. And ServiceNow’s announcement of the “Vancouver” update to its software platform, expected Wednesday, could be a catalyst for NOW stock.
In afternoon trading on the stock market today, ServiceNow stock edged up 0.5% to 582.48. ServiceNow stock has advanced nearly 50% in 2023.
ServiceNow’s New CEO Making His Mark
The company’s software tracks and manages services provided by information-technology departments. Also, its self-service tech portal enables company employees to access administrative and workflow tools.
Further, ServiceNow has expanded from its core business into software for human resources, customer service management and security.
ServiceNow brought in Bill McDermott as its chief executive in late 2019. Under McDermott, formerly CEO of SAP (SAP), ServiceNow has yet to make a big acquisition as some analysts anticipated. But McDermott targeted artificial intelligence in his early days at ServiceNow, acquiring Element AI and Passage AI.
Many investors have focused on AI stocks owing to startup OpenAI’s launch of ChatGPT last November, with the aid of partner Microsoft (MSFT). Many companies are scrambling to launch generative AI pilot programs.
Generative AI models process “prompts,” such as internet search queries, that describe what a user wants to get. Generative AI technologies create text, images, video and computer programming code on their own. Industry-specific versions of generative AI are expected to use company data to train AI models.
The challenge for many software makers — including big caps Salesforce (CRM) and Adobe (ADBE) — is how to make money off generative AI tools integrated into legacy platforms. With the Vancouver announcement, ServiceNow is expected to unveil its pricing strategy.
NOW Stock: Nvidia, Hugging Face Partnerships
ServiceNow has been building up to the Vancouver announcement. In May, it revealed a partnership with Hugging Face, an OpenAI rival. In August, ServiceNow announced a partnership with chipmaker Nvidia (NVDA). Nvidia is the leading supplier of AI chips for training generative AI models.
ServiceNow is expected to integrate generative AI with its Creator programming tools.
At a Goldman Sachs conference Sept. 6, McDermott said: “On September 20th, we have a release called Vancouver that is going to unleash lots of innovation in AI in IT — in the employee experience, in customer service management and, of course, in this Creator for the citizen developer to text to code, text to workflow automation and text to new app development, which I think will be a sensation.”
Large language models, or LLMs, lie at the center of ChatGPT and other generative AI systems. The more data an LLM is trained upon, the more powerful its capabilities can become.
ServiceNow expects to have an edge in building industry-specific models using customers’ proprietary data.
ServiceNow Stock: iPhone Moment
“This is the iPhone moment for the enterprise,” McDermott said at the Goldman Sachs event. “You have Vancouver, but we’ll release more AI solutions in Q4 too. And then we have Washington that’s coming out in Q1 of next year.”
Meanwhile, ServiceNow reported June-quarter earnings that beat analyst estimates while revenue edged by views. Its outlook for a key financial metric — current remaining performance obligations, or CRPO — spooked some NOW stock investors.
In the June quarter, CRPO bookings were $7.2 billion, up 25% from a year earlier. The software maker had forecast 23% growth.
For the current September quarter, ServiceNow forecast CRPO growth of 21.5%, which was below estimates.
For fiscal 2024, Wall Street analysts predict 23% earnings growth to $12.23 a share, and see revenue climbing 22% to $10.85 billion. ServiceNow’s projected 2024 growth is about double that of Salesforce, another software-as-a-service company.
NOW Stock: Technical Ratings
Further, ServiceNow has a best-possible IBD Composite Rating of 99. The Composite Rating scores a stock’s key growth metrics against all other stocks regardless of industry group.
However, ServiceNow stock has an Accumulation/Distribution Rating of C, indicating mediocre demand for shares among institutional investors.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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