Why ServiceNow Stock Rallied Today
Key Points
Like many software providers, ServiceNow stock has been punished.
One analyst believes the selling has simply gone too far.
Shares of ServiceNow (NYSE: NOW) charged sharply higher on Wednesday, surging as much as 8.5%. As of 1:39 a.m. ET, the stock was still up 7%.
The catalyst that drove the cloud-based digital workflow specialist higher was bullish commentary from a Wall Street analyst.
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What AI disruption?
BofA analyst Tal Liani maintained his buy rating on ServiceNow stock and raised his price target to $150, up from $130. For those keeping score at home, that represents potential upside of 26% compared to Tuesday's closing price.
The longtime ServiceNow bull cites the market's changing view of software stocks, which is driving broad-based expansion in software multiples. The analyst notes that fears of AI-related disruption are beginning to ease, and evidence from other infrastructure names suggests improving growth.
I think the analyst has a point. Software-as-a-Service (SaaS) stocks have been hammered in recent months. However, the popular narrative that artificial intelligence (AI) agents will eliminate the need for software stocks is proving to be too simplistic.
In fact, the proliferation of AI agents might actually increase the need for gatekeepers like ServiceNow. The company's tools are deeply embedded in customer workflows, providing additional context and guidance agents need to complete more complex tasks. It can also provide the necessary guardrails to keep agents in their lanes and reduce the likelihood of strategic blunders.
Like many software stocks, ServiceNow has been pummeled, down 33% off its peak -- even after today's rally. As a result, the stock is selling for 31 times forward earnings, a discount to its three-year average multiple of 49. That gives astute investors the opportunity to pick up shares at a discount.
Bank of America is an advertising partner of Motley Fool Money. Danny Vena, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ServiceNow. The Motley Fool has a disclosure policy.