ServiceNow (NOW) shares slipped about 0.7% to $102.50 in midday trading July 20 after CLSA began covering the enterprise-software company with an Underperform rating and a $72 price target, implying about 30% downside from the stock’s midday price.
CLSA analyst Bhavtosh Vajpayee said ServiceNow’s growth has remained steady as businesses adopt artificial intelligence tools, but the stock already reflects expectations that the company will become a leading enterprise-AI platform.
ServiceNow will report second-quarter results after the market closes July 22. Its subscription sales, contracted revenue, and operating margin will give investors fresh data on customer demand and on how much the Armis acquisition is weighing on profitability.
The CLSA call stands apart from several recent bullish ratings. Oppenheimer has a $140 target on ServiceNow, while Guggenheim recently upgraded the shares to Buy with a $125 target.
Oppenheimer’s $140 target represents more than 35% upside from Monday’s midday price, in sharp contrast with CLSA’s bearish outlook.
Our AI growth is far exceeding even our own expectations.
CLSA puts a $72 price tag on ServiceNow’s AI outlook
ServiceNow sells software that helps companies automate work across IT, customer service, human resources, and security.
Its AI products can summarize cases, resolve routine support requests, and coordinate automated agents across a customer’s existing systems, supporting the company’s argument that businesses will use ServiceNow to manage AI adoption inside the enterprise.
ServiceNow said its Now Assist customers spending more than $1 million annually grew more than 130% during the first quarter. The company also increased its 2026 AI annual recurring revenue target to $1.5 billion from $1 billion.
Related: Bank of America resets ServiceNow stock price target sharply
CLSA acknowledged that ServiceNow’s growth has remained steady during the expansion of enterprise AI. Its concern centers on how much investors are paying for that growth.
The firm said ServiceNow was trading at a mid-40s multiple of estimated next-12-month GAAP earnings. CLSA based its $72 target on a multiple of 25 times projected fiscal 2027 GAAP earnings, the same multiple it applied to Microsoft (MSFT) and a premium to the multiple it assigned Salesforce (CRM).
CLSA’s call, therefore, is about the pace of future earnings growth. If ServiceNow’s AI products generate faster subscription growth and improve the economics of its platform, investors may accept a higher earnings multiple.
Steady growth accompanied by weaker margins would make the current share price harder to defend under CLSA’s framework.
ServiceNow earnings will test bookings growth and margins
ServiceNow’s July 22 report will provide three useful measures of customer demand: subscription revenue, current remaining performance obligations, and the company’s forward guidance.
Current remaining performance obligations, or cRPO, represent contracted revenue that ServiceNow expects to recognize over the following 12 months. The figure gives investors an indication of near-term sales already supported by customer agreements, even though that revenue has not yet appeared on the income statement.
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ServiceNow’s first-quarter cRPO rose 22.5% to $12.64 billion. Its second-quarter guidance calls for 19% growth, including approximately 1.25 percentage points from its acquisition of cybersecurity company Armis.
If cRPO growth comes in above the 19% forecast, it would show that customers are still signing or expanding ServiceNow contracts even as investors debate whether generative AI could reduce demand for traditional software platforms.
Margins will receive similar attention. ServiceNow expects a second-quarter non-GAAP operating margin of 26.5%. The company said its $7.75 billion Armis acquisition would reduce that margin by approximately 1.25 percentage points during the quarter.
Key numbers to watch in ServiceNow’s Q2 report
- $72: CLSA’s ServiceNow price target
- About 30%: Downside from the stock’s July 20 midday price
- $3.815 billion to $3.820 billion: ServiceNow’s subscription-revenue guidance
- 22.5%: Guided subscription-revenue growth
- 19%: Guided cRPO growth
- 26.5%: Guided non-GAAP operating margin
- $3.92 billion: Zacks consensus estimate for total revenue
- 86 cents: Zacks consensus estimate for earnings per share
Wall Street splits over how much ServiceNow’s AI story is worth
Oppenheimer took the opposite view from CLSA ahead of ServiceNow’s earnings report.
The firm raised its ServiceNow price target to $140 from $130 and maintained an Outperform rating.
Oppenheimer expects AI-related products to account for more than 10% of ServiceNow’s revenue mix by the end of 2026, supported by the company’s workflow automation platform, 2030 financial targets, and expected margin stability.
Guggenheim also turned more bullish this month, upgrading ServiceNow to Buy from Neutral and assigning a $125 target.
The firm said investors had priced in an overly severe AI disruption scenario for software stocks, even though there was limited evidence that customers were abandoning established enterprise-software platforms.
ServiceNow’s second-quarter results will give both sides a clearer test. Subscription commitments and AI-related sales will show whether customers are expanding their use of the platform, while operating margin will indicate whether ServiceNow can absorb Armis and continue investing in AI without allowing costs to outpace revenue growth.
A strong bookings result accompanied by stable guidance would support the $125-to-$140 bullish targets. Slower contract growth or additional margin pressure would strengthen CLSA’s $72 case.
Related: Morgan Stanley has a message for ServiceNow investors
