ServiceNow: Don't Throw The Baby Out With The Bathwater
Despite a sharp market sell-off following its earnings report, ServiceNow delivered a beat-and-raise quarter with subscription revenue growth expected to exceed 20% in 2026. The stock's valuation has become more attractive at 18.0x 2027 earnings, while free cash flow is projected at $5.5 billion for the year. Concerns about acquisition-driven growth and AI-related risks may have fueled the negative reaction, but the author views AI as a strategic opportunity for the company. ServiceNow remains a strong buy based on fundamentals and long-term growth potential.
- ▪ServiceNow reported a beat-and-raise quarter despite a negative market reaction.
- ▪Subscription revenue is expected to grow over 20% in fiscal 2026.
- ▪The stock trades at 18.0x consensus 2027 earnings with a projected ~6.0% free cash flow yield.
- ▪Investor concerns include reliance on acquisitions for growth and AI disruption, though the author sees AI as an opportunity.
- ▪The author holds a long position in ServiceNow and believes it is undervalued.
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