ServiceNow Shares Rise 4.84% to $146.75 as Investors Rotate Into Software
ServiceNow shares were up 4.84% at $146.75 Thursday, as investors rotated toward enterprise software. TD Cowen reiterated its Buy rating and raised its price target to $165 from $140.
ServiceNow Inc. (NYSE: NOW) shares advanced Thursday as investors shifted funds from heavily indebted AI companies into enterprise software, lifting established technology-services stocks. Concerns that prices and borrowing costs could remain elevated for an extended period may be making the sector’s proven business models more attractive. Thursday’s inflation figures added to those concerns.
The Bureau of Labor Statistics reported that producer prices rose 1.3% in September from August, more than double economists’ 0.5% estimate. Prices were up 6.3% from a year earlier, compared with an expected 5.3% increase, marking the largest annual gain since December 2022. Excluding food and energy, core producer prices increased 0.7% month over month and 5% year over year. The consumer price index released Wednesday had also been higher than forecast: headline inflation was 3.7%, a tenth above the 3.6% estimate.
Additionally, TD Cowen analyst Derrick Wood TD Cowen reiterated its Buy rating on ServiceNow and lifted its price target to $165 from $140 in a Wednesday note. Wood expects a strong third quarter, with results scheduled for October 28. Customer checks indicate that clients are moving to the ITSM Prime tier and purchasing more of ServiceNow’s other core products. Wood also expects Armis and the U.S.
federal business to exceed expectations, and sees scope for current remaining performance obligations (cRPO) growth to accelerate modestly. One partner said about half of renewal discussions now result in AI upgrades, typically to Prime, lifting average selling prices by roughly 30%. ServiceNow shares have climbed more than 45% since the company’s second-quarter report. Wood’s $165 target is based on about 24 times enterprise value to 2027 free cash flow, versus about 20 times at current prices.
TD Cowen’s risk list includes reliance on IT service management and large multimillion-dollar deals. Why the Shift Could Help ServiceNow The broader shift could benefit ServiceNow, which appears to fit what investors are seeking. TD Cowen’s key data list net debt near $3.8 billion against a market value of $144.7 billion, a modest burden relative to debt-heavy AI names. At about 24 times On an enterprise value-to-next-twelve-month free cash flow basis, ServiceNow trades roughly 40% below its five-year average of around 40 times.
The company also provides AI exposure with limited borrowing. TD Cowen said annual contract value associated with AI has exceeded $1 billion. If inflation and interest rates remain high, companies that consistently generate cash could attract buyers, potentially benefiting ServiceNow. ServiceNow shares were up 4.84% at $146.75 at the time of publication on Thursday, according to Pro.