ServiceNow Named a Best Idea for 2025 by TD Cowen

Investing.com – ServiceNow (NYSE:NOW) has been highlighted as a Best Idea for 2025 by TD Cowen in a note released on Tuesday. The bank recognizes ServiceNow's promising position in the generative AI (GenAI) product cycle.

Analysts have increased their price target for ServiceNow's stock to $1,300 from $1,025, citing robust AI-driven growth prospects and effective monetization strategies.

> "NOW is the leader in Enterprise Service Management, targeting a ~$500b Total Addressable Market (TAM). We believe NOW offers one of the strongest approaches to GenAI monetization across the SaaS layer," the bank stated.

In their analysis, they noted that the innovative GenAI product, Pro+, has resulted in increased spending and adoption within its inaugural year.

Upcoming data solutions, Workflow Data Fabric and RaptorDB Pro, are set to be released in early 2025, further enhancing ServiceNow’s abilities in creating "Agentic AI Networks." These networks are designed to facilitate autonomous workflows across enterprise systems.

ServiceNow’s strategy capitalizes on domain-specific language models rather than general foundation large language models (LLMs), ensuring both cost efficiency and high accuracy in performance.

TD Cowen points out that the hybrid pricing model, which merges subscription and consumption-based fees, bolsters this strategy.

Looking to the future, TD Cowen anticipates a 30% increase in annual contract value (ACV) driven by Pro+ adoption, along with mid-30% revenue growth in the front-office segment, potentially reaching $2.5 billion by FY26.

Furthermore, an increase in sales capacity and expanding partnerships for Pro+ are expected to contribute significantly to the company’s growth momentum.

Despite a 60% increase in its stock this year, TD Cowen deems ServiceNow’s impressive "Rule of 40" performance at 52% as a justification for its premium valuation, solidifying its position as a top pick for 2025.