ServiceNow stock forecast ahead of earnings: buy, sell, or hold?

ServiceNow stock has dropped and underperformed the market this year as demand for software companies waned. NOW has dropped by 32% this year and 46% in the last 12 months, erasing billions of dollars in value. Investors are now focusing on its earnings for more cues on how it is adapting to the artificial intelligence (AI) boom.

ServiceNow’s business has grown despite fears of AI disruption

ServiceNow is a top software company that offers solutions to companies from around the world. Its solutions enable companies to streamline their workflows to drive collaboration, productivity, and better experiences across the enterprise.

ServiceNow’s business is used by some of the biggest companies globally, including Microsoft, NVIDIA, Amazon, IBM, and Accenture. According to its website, it has over 9,000 customers, including 85% of those in Fortune 500.

Its stock has dropped substantially this year amid concerns that AI agents will replace its business over time. Also, IBM raised concerns that companies are shifting their resources towards hardware, which may affect software companies. 

Despite these fears, ServiceNow’s business has done well in the past few quarters. Its most recent results showed that subscription revenues jumped by 22% in the first quarter to $3.6 billion. Its remaining performance obligations (RPO) jumped by 22.5% to $12.64 billion, while its operating margin improved by 100 basis points to 32%.

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Focus now shifts to the upcoming earnings, which will provide more information about its business. Analysts are optimistic that its double-digit revenue growth trajectory will continue. The average estimate is that its revenue rose by 22.16% in the last quarter to $3.93 billion. 

Analysts also expect that its third-quarter revenue will be $4.12 billion, up by 21% YoY. If this trend continues, it means that ServiceNow’s annual revenue growth will be 22% to $16.1 billion. It will then jump to $19.2 billion next year.

ServiceNow has a long track record of beating analysts' estimates, suggesting that both its revenue and earnings are likely to exceed expectations unless the industry experiences a significant downturn.

Analysts are still supportive of the ServiceNow stock. Benchmark’s Yi Fu, TD Cowen’s Derrick Wood, RBC’s Matthew Hedberg, and Citigroup’s Tyler Radke recently reiterated their bullish outlook. According to MarketBeat, the company has three sell ratings and 36 buy ones. The consensus target for the stock is $141, higher than the current $103.

ServiceNow stock price analysis

NOW stock chart | Source: TradingView

The weekly chart shows that the NOW stock price has plunged in the past few months, moving from the year-to-date high of $238.90 to the current $103.25. 

The stock has already formed a death cross pattern as the 50-week and 200-week Exponential Moving Averages (EMA) crossed each other. It also remains below the key resistance level of $135.85, its lowest level in April last year.

Therefore, the stock will likely continue falling, potentially to the year-to-date low of $80. The bearish outlook will become invalid if it jumps above the key resistance level of $135.86. 

READ MORE: ServiceNow stock jumps after Guggenheim upgrade despite AI concerns