ServiceNow Viewed as Most Affordable Large-Cap Software Stock, Says Bernstein Analyst

ServiceNow (NYSE: NOW) has recently drawn investor attention as Bernstein SocGen reiterated its “Outperform” rating with a price target of $1,093. The firm describes ServiceNow as the “cheapest large-cap software stock” on the market following its recent selloff. Bernstein highlights that the stock’s valuation is overly discounted when compared to its fundamentals and industry peers.

In an analysis, Bernstein noted that ServiceNow’s price relative to its 3-year forward free cash flow is now below other large-cap software companies heavily impacted by AI market fears, such as Adobe. The firm wrote, “The ‘cheapest’ large-cap software stock?!? This is a title we didn’t think we’d ever write for a business we labeled as ‘the next Microsoft.’” Despite the recent stock decline triggered by the potential Armis acquisition, Bernstein believes the drop undervalues the company’s true growth prospects.

Bernstein further emphasized that ServiceNow trades at a lower valuation than Salesforce, a company currently burdened by reputation challenges. They stated, “We don’t see organic growth guide downs on the horizon, unlike mid-2022 when guidance cuts followed a bearish macro environment.” Current signals indicate “normal” IT demand heading into the future, supported by consistent channel checks and management commentary pointing to accelerating customer demand.

Management also acknowledged potential risks from macroeconomic shocks or external factors like AI-related market corrections or geopolitical issues. However, they believe such challenges may paradoxically boost demand as companies seek cost efficiencies during downturns. ServiceNow’s platform integrates workflows, data, and AI to improve operational efficiency for large enterprises, positioning it well amid ongoing digital transformation trends.

While ServiceNow offers compelling value among large-cap software stocks, some investors may find other AI stocks with more upside potential and lower downside risks. Still, Bernstein’s call highlights ServiceNow’s currently attractive entry point relative to its growth outlook and sector peers.