IBD Stock Analysis
- ServiceNow stock has formed a cup-with-handle base with a 607.90 buy point
- Shares have now found support at their 50-day line after a recent pullback
- ServiceNow is on four IBD stock lists
Industry group ranking
An emerging pattern
Cup with handle
* No real-time data. All data shown was captured on 09/18/2023 at 1:42PM EDT.
service now (Now) is the IBD stock of the day because the enterprise software maker is riding the wave of corporate interest in generative artificial intelligence. And ServiceNow’s announcement of a “Vancouver” update to its software platform, expected Wednesday, could be a catalyst for Now stock.
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In the stock market today, ServiceNow stock fell 0.2% to 578.51. ServiceNow stock is up 49% in 2023.
On the weekly chart, NOW stock has formed a cup-with-handle base with a 607.90 buy point.
ServiceNow’s new CEO is making his mark
The company’s software tracks and manages services provided by IT departments. Also, its self-service tech portal enables company employees to access administrative and workflow tools.
Further, ServiceNow has expanded from its core business into software for human resources, customer service management and security.
ServiceNow brought in Bill McDermott as its chief executive in late 2019. Under McDermott, the former CEO SAP (SAP), ServiceNow has an even bigger acquisition to make than some analysts expected. But McDermott targeted artificial intelligence in his early days at ServiceNow, acquiring Element AI and Passage AI.
Many investors have focused on AI stocks since OpenAI’s startup ChatGPT launched last November with the help of a partner. Microsoft (MSFT). Many companies are scrambling to launch generative AI pilot programs.
Generative AI models process “prompts,” such as Internet search queries, that describe what the user wants to find. Generative AI technologies generate text, images, video and computer programming code themselves. Industry-specific versions of generative AI are expected to use company data to train AI models.
A challenge for many software makers — including large caps Salesforce (CRM) and Adobe (ADBE) — How to monetize generative AI tools integrated into legacy platforms. Along with the Vancouver announcement, ServiceNow is expected to unveil its pricing strategy.
Stocks Now: Nvidia, Hugging Face Partnership
ServiceNow is building up to the Vancouver announcement. In May, a partnership with OpenAI competitor Hugging Face was revealed. In August, ServiceNow announced a partnership with the chipmaker Nvidia (NVDA). Nvidia is a leading supplier of AI chips for training generative AI models.
ServiceNow is expected to integrate generative AI with its Creator programming tools.
At the Goldman Sachs conference on September 6, McDermott said: “On September 20, we have a release called Vancouver that will bring a lot of innovation to AI in IT – employee experience, customer service management and, of course, text-to-code, text-to-text for citizen developers. Workflow automation and text to new app development, which I think will be a sensation.”
Large language models, or LLMs, are at the heart of ChatGPT and other generative AI systems. The more data LLM is trained on, the more powerful its capabilities can become.
ServiceNow expects to gain an edge in building industry-specific models using customer-owned data.
ServiceNow Stock: The iPhone Moment
“This is the iPhone’s moment for the enterprise,” McDermott said at a Goldman Sachs event. “You have Vancouver, but we’ll be releasing more AI solutions in Q4. And then we have Washington which is coming in Q1 of next year.”
Meanwhile, ServiceNow reported June-quarter earnings that beat analysts’ estimates, while earnings beat views. Its approach to a key financial metric — current remaining performance obligations, or CRPO — now spooks some stock investors.
In the June quarter, CRPO bookings were $7.2 billion, up 25% from a year ago. The software maker had forecast 23% growth.
For the current September quarter, ServiceNow forecast CRPO growth of 21.5%, which was below estimates.
For fiscal 2024, Wall Street analysts forecast 23% earnings growth to $12.23 a share, and revenue up 22% to $10.85 billion. ServiceNow’s projected growth to 2024 is twice that of Salesforce, another software-as-a-service company.
Stocks Now: Technical Ratings
According to IBD Stock Checkup, Now stocks own an IBD Relative Strength Rating of 91 out of 99. This means it has outperformed 91% of stocks over the past 12 months.
Further, ServiceNow has the best-possible IBD Composite Rating of 99. The composite rating scores a stock’s key growth metrics relative to all other stocks, regardless of industry group.
However, ServiceNow stock has an accumulation/distribution rating of C, indicating moderate demand for the shares among institutional investors.
Meanwhile, the stock is now on four IBD stock lists: Leaderboard, IBD 50, Big Cap 20 and Tech Leaders.
Follow Reinhardt Krause on Twitter @reinhardtk_tech For updates on 5G wireless, artificial intelligence, cyber security and cloud computing.
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