ServiceNow Stock Surges as Investors Shift to Legacy Tech

ServiceNow Inc. (NYSE:NOW) shares are climbing Thursday as money flows from debt-laden AI names into enterprise software. Here’s what you should know.

• ServiceNow stock is among today’s top performers. What’s behind NOW gains?

ServiceNow Rises as Investors Rotate Into Software

Investors are leaving AI-exposed companies that carry heavy debt and buying enterprise software, a move that is lifting legacy tech services stocks. Concern that prices and borrowing costs could stay high for a long time may be making the sector’s tested business models look more appealing.

Thursday’s inflation data fed that worry. In September, producer prices climbed 1.3% from August, more than double the 0.5% economists had projected, the Bureau of Labor Statistics said. Compared with a year earlier, the increase was 6.3%, versus an expected 5.3%, and it is the biggest annual gain since December 2022. Core producer prices, excluding food and energy, rose 0.7% month over month and 5% year over year.

Wednesday’s consumer price index had already come in hot. Headline inflation reached 3.7%, a tenth above the 3.6% forecast.

TD Cowen Raises ServiceNow Price Target

Additionally, TD Cowen analyst Derrick Wood reiterated a Buy rating on ServiceNow and raised the price target to $165 from $140 in a Wednesday note.

Wood anticipates a strong third quarter, with results due October 28. Checks show customers upgrading to the ITSM Prime tier and buying more of ServiceNow’s other core products. Wood also expects Armis and U.S. federal business to beat expectations and sees room for current remaining performance obligations (cRPO) growth to quicken modestly. One partner said about half of renewal discussions now produce AI upgrades, typically Prime, which raises average selling prices roughly 30%.

ServiceNow stock has jumped more than 45% since its second-quarter report. Wood bases the $165 target on about 24 times enterprise value to 2027 free cash flow, compared with about 20 times at current prices. TD Cowen’s risk list includes dependence on IT service management and on large multimillion-dollar deals.

Why the Shift Could Help ServiceNow

The broader shift could favor ServiceNow, which looks like what investors are hunting for. TD Cowen’s key data list net debt near $3.8 billion against a market value of $144.7 billion, a modest burden compared with debt-heavy AI names. At about 24 times enterprise value to next-twelve-month free cash flow, the stock sits roughly 40% under its five-year average of around 40 times.

ServiceNow also offers AI exposure without much borrowing. TD Cowen said annual contract value tied to AI has surpassed $1 billion. If inflation and rates stay high, companies that steadily produce cash could draw buyers, which may help ServiceNow.

NOW Shares Are Climbing

NOW Price Action: ServiceNow shares were up 4.84% at $146.75 at the time of publication on Thursday, according to Benzinga Pro.

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