Benchmark analyst Yi Fu Lee recently initiated coverage of ServiceNow (NYSE:NOW) with a Buy rating and a price target of $125. The analyst believes that the stock’s recent 50% selloff has created an attractive entry point for long-term investors. Despite the disconnect between the stock price and fundamentals, ServiceNow’s AI monetization is gaining momentum.
ServiceNow boasts a 98% renewal rate, 25% year-over-year growth in remaining performance obligations, and strong free cash flow generation. These factors indicate a solid foundation for the company’s long-term growth potential. CEO Bill McDermott’s leadership has been highlighted as a key driver of profitable growth, with McDermott expressing confidence in the company’s future prospects.
In Q4 FY2025, ServiceNow’s Now Assist net new annual contract value more than doubled year-over-year, with a significant increase in transactions exceeding $1 million in net new ACV. The company’s full-year free cash flow reached $4.576 billion, marking a 34% year-over-year growth.
ServiceNow is a cloud platform that automates digital workflows across various business functions, including IT, security, HR, and customer operations. The company closed FY2025 with $13.278 billion in revenue, up 21% year-over-year, and expects subscription revenue to reach $15.53 billion to $15.57 billion in 2026. With over 8,800 customers and a 98% renewal rate, ServiceNow demonstrates strong revenue visibility and customer loyalty.
Despite the stock trading at a trailing P/E of 63x and a forward P/E of 25x, Benchmark’s initiation reflects a belief that the price has disconnected from the company’s strong fundamentals. While there are risks such as federal budget tightening and integration complexities from pending acquisitions, ServiceNow’s guidance for non-GAAP operating margin and free cash flow margin in 2026 remains promising.
Overall, Benchmark’s Buy rating on ServiceNow underscores the long-term growth potential of the enterprise AI platform. Investors should consider the company’s solid financial performance and strategic position in the market when evaluating investment opportunities in the stock.
