Bernstein raised its price target on ServiceNow to a Street-high $266 ahead of quarterly results next week. Analyst Peter Weed argues that higher-priced AI offerings could help accelerate revenue growth.
ServiceNow shares rose 1% in premarket trading Tuesday, outperforming a weaker technology market. Bernstein cited growing adoption of the software company's AI-native products.
Weed maintained an Outperform rating. He argued that the AI offerings could also support a potential re-rating of the stock in the second half of the year.
Bernstein expects growth to approach 20%
Weed expects ServiceNow's organic constant-currency revenue growth to accelerate from 18% in the first quarter to nearly 20% in the fourth quarter. He points to easier comparisons with U.S. federal government downsizing and increasing AI-driven demand.
His latest customer checks found that adoption of AI-native stock-keeping units, or SKUs, remained around 50% at renewal, including among new customers. More than 80% of recent contracts involved some form of AI, covering broader deployments of existing products and purchases of newer standalone offerings.
Bernstein estimates that AI-native products could add around 20 basis points to revenue growth in the third quarter and 60 to 70 basis points in the fourth quarter, as more customer contracts come up for renewal.
Pricing tailwind runs through fiscal 2028
ServiceNow has indicated that pricing for comparable AI-native products can be 20% to 30% higher, depending on the product tier. Weed expects the pricing and adoption tailwind to peak at around 1.5 to 2 percentage points through fiscal 2028, before it becomes less favorable as comparisons roll into fiscal 2029.
Bernstein also raised its estimates for fiscal 2027 and 2028 to reflect an incremental revenue contribution of 1% to 2% or more from AI-native products. The projections exclude potential early renewals, which could provide an additional boost.
ServiceNow's upcoming earnings report could provide a fresh test of whether AI adoption and higher pricing can help the company sustain growth near 20%.
Source: Investing.com
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