Is ServiceNow (NOW) Still Cheap On New AI Partnerships?

Recent AI partnerships around ServiceNow (NOW), including Pricefx’s Deal Optimization App and Tech Mahindra’s expanded collaboration, are drawing attention to the stock as investors assess how this platform centric approach might influence long term positioning.

Against this backdrop of new AI partnerships, ServiceNow’s share price has recently swung higher, with a 7 day share price return of 8.68% and a 30 day share price return of 19.73%, although the year to date share price return is still down 7.28% and the 1 year total shareholder return is down 25.65%. This points to improving short term momentum after a tougher period for longer term holders.

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The recent rebound and fresh AI deals put ServiceNow back on investors’ radar. After this sharp move, does the current valuation still leave enough potential upside to justify the risk for new buyers and for existing holders considering adding more?

Most Popular Narrative: 48.6% Undervalued

Against the last close of $136.72, the most followed narrative on ServiceNow pegs fair value at $266.01, which implies a large gap between price and what that narrative sees as long term cash flow potential.

The market sees software.

I see something very different.

I see infrastructure.

Imagine walking into a Fortune 500 company tomorrow morning and turning off ServiceNow.

Not the logo.

Not the stock.

The platform itself.

HR requests stop moving.

IT tickets stop flowing.

Security workflows lose visibility.

Employee onboarding slows.

Approvals stall.

Critical business processes begin piling up like cars on a freeway after a major accident.

Read the complete narrative.

According to John_Eric, that fair value hinges on how fast ServiceNow can compound workflow based revenues, turn scale into higher margins, and convert more of those cash flows into shareholder value. It may be useful to explore which specific growth and profitability assumptions sit under that $266.01 figure, and how much execution room the narrative allows management before that valuation changes.

Result: Fair Value of $266.01 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, ServiceNow’s thesis still faces pressure from any slowdown in workflow adoption or weaker AI monetization, which could challenge assumptions behind that $266.01 fair value.

Find out about the key risks to this ServiceNow narrative.

Another View: What ServiceNow’s P/E Is Telling You

ServiceNow may look inexpensive relative to a $266.01 fair value estimate, yet its current P/E of 84.6x is very high compared with the US Software industry at 30.7x and the peer average at 27.2x. It is also significantly above a fair ratio of 52.5x, which raises questions about valuation risk if sentiment cools.

See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

With sentiment this mixed around ServiceNow, it helps to move quickly and inspect the underlying data yourself instead of relying on headlines. To see what investors are optimistic about in the current thesis, review the 3 key rewards.

Looking for more investment ideas beyond ServiceNow?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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