ServiceNow (NOW 2.19%) has a strong reputation as one of the world's largest software companies. Its software-as-a-service (SaaS) business model has generated soaring sales and profits that have made the stock a big winner until recently.
Fears that artificial intelligence (AI) will erode software companies' competitive moats have driven a steep industrywide sell-off. ServiceNow is currently 56% off its high.
Wall Street analysts have given the stock their support. According to CNN Business, 91% of the 47 analysts covering the stock rate it a buy, with a median target price of $180. That implies the stock has 76% upside from here. But do these ratings make sense?
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How vulnerable is ServiceNow to AI?
ServiceNow provides software tools for managing workflows throughout companies. That could be an IT support ticket or a maintenance issue with a piece of machinery. Everything in a big business needs a process and a system to track it all. ServiceNow handles all this through its platform.
Since much of this involves automating simple tasks, AI is lowering competitive barriers. AI agents are already capable of performing many of the tasks that ServiceNow charges for, which could begin to erode the company's pricing power.
However, it's not that simple. ServiceNow already has years of proprietary data and operates beneath the security and data layer that enterprises guard very closely. Completely replacing ServiceNow isn't easy, while replacing one workflow at a time would undermine the convenience and efficiency its platform already offers.
ServiceNow is also proactively embracing AI, bringing AI agents and other tools to its customers before they go elsewhere in search of them. It's also pivoting to a usage-based billing model to protect against lower head counts if AI collapses seat-based pricing.
NYSE: NOW
Key Data Points
Are analysts right about the stock's upside?
The reality is that AI is both an opportunity and a threat. Only time will tell how AI impacts ServiceNow's business and to what extent.
Today, ServiceNow stock trades at less than 25 times 2026 earnings estimates, while analysts estimate earnings will grow by an average of 24% annually over the next three to five years. Shares are a bargain today if the business generates anywhere near that level of growth moving forward.
Is that too optimistic? It may be smart to dial back expectations a bit, as 76% upside from today's valuation assumes far more will go right than not. The good news? ServiceNow's compelling valuation gives the stock plenty of upside to make investors happy, even if it falls a bit short of analyst targets.
