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ServiceNow Inc. (NYSE:NOW) got a fresh vote of confidence from Bank of America on Friday, with the firm raising its price forecast ahead of the software company's third-quarter earnings report.
Bank of America analyst Tal Liani maintained a Buy rating and lifted the price forecast to $180 from $150. The reasoning: rising demand for artificial intelligence-powered business automation should keep ServiceNow's revenue growing and customers spending.
Liani's thesis is that ServiceNow is well positioned as businesses move beyond basic AI automation toward more complex workflows. The company's established workflow platform, customer relationships and enterprise data infrastructure could give it an edge over competing AI providers.
ServiceNow's AI Control Tower, AI-native products and new AI Specialists could also drive adoption across IT, customer relationship management, employee services and cybersecurity.
Bank of America sees a cost advantage here. ServiceNow's platform already contains much of the data needed to deploy AI agents, while competing providers may face additional expenses to extract, organize and reintegrate enterprise data.
That confidence shows up in the numbers. The firm raised its valuation multiple to 27 times estimated 2027 enterprise value to free cash flow from 23 times, reflecting expectations for broader AI adoption and additional customer spending.
Bank of America's October survey of chief information officers showed sustained demand for IT services and growing interest in AI.
The survey found that 42% of respondents ranked IT service management and IT operations management among their five biggest spending priorities. Meanwhile, 54.5% said they were likely or very likely to use ServiceNow for back-office AI applications.
About 36% of respondents expected AI to account for more than 10% of their software budgets.
But broader software spending growth could remain modest. About 31% of respondents expected budget increases of 1% to 5% in 2027, while 27% anticipated growth of 6% to 10%. The findings suggest ServiceNow could benefit from both its established enterprise software business and rising corporate investment in AI.
ServiceNow confirmed it will report third-quarter financial results after the market closes Wednesday, Oct. 28.
Wall Street expects earnings of $1.03 per share, up from 96 cents a year earlier. Revenue is expected to rise to $4.09 billion from $3.41 billion in the year-ago quarter.
Bank of America projects subscription revenue growth of 20.6% year over year to approximately $3.98 billion, including 18.5% organic growth. The firm also expects current remaining performance obligations, a measure of contracted revenue expected to be recognized over the next 12 months, to grow 20% in constant currency.
Investors will closely watch ServiceNow's progress toward its $1.5 billion annual contract value goal for AI products in fiscal 2026.
On margins, Bank of America expects some pressure on gross margins, although operating efficiencies could help offset the impact. The firm forecasts a third-quarter operating margin of 31.1%.
ServiceNow carries an average analyst price forecast of $158.72, with a Buy consensus rating. Several Wall Street firms have recently raised their forecasts ahead of the earnings announcement.
On Friday, Guggenheim maintained its Buy rating and raised its price forecast to $175. Truist Securities maintained a Buy rating and lifted its forecast to $180 on Wednesday, Oct. 21. StoneX also maintained a Buy rating and raised its forecast to $165 on Monday, Oct. 19.
The upgrades reflect growing analyst optimism about ServiceNow's AI opportunities and enterprise software demand.
Despite the bullish outlook, ServiceNow trades at a price-to-earnings ratio of 98.1, reflecting a premium valuation. Bank of America warned that the stock could face pressure if bookings disappoint or investor sentiment weakens.
The firm also highlighted competition, slower enterprise software spending and rising AI infrastructure costs as potential risks. Additionally, customers may increasingly expect AI capabilities to be included in existing subscriptions rather than purchased separately, potentially limiting revenue opportunities.
Still, Bank of America believes ServiceNow's enterprise relationships, established workflow platform and expanding AI capabilities position the company to capture a larger share of corporate technology spending.
NOW Price Action: ServiceNow shares were down 0.13% at $156.05 at the time of publication on Friday, according to market data.
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