Macquarie Sees Strength in ServiceNow (NOW) but Limited Near-Term Upside

Core Insights - ServiceNow Inc. is recognized as a promising AI stock, with Macquarie initiating coverage with a Neutral rating and a price target of $860, indicating that the stock is already priced for much of its potential upside [1][2] - The company has demonstrated strong fundamentals, including a fiscal 2024 subscription revenue of $10.646 billion, reflecting a 23% increase from the previous year, and a free cash flow margin of 31% [2] - Recent announcements include new integrations with Microsoft, aimed at enhancing enterprise AI orchestration and governance, with general availability expected by year-end [3][4] Financial Performance - ServiceNow achieved a mid-50s Rule of 40 score, indicating a healthy balance of growth and profitability [2] - Revenue and earnings estimates for the upcoming years are projected to be above market expectations, with potential catalysts from upcoming results and updates on AI monetization [2] Product Development - The company is expanding its AI-driven workflow automation capabilities, particularly with the introduction of Now Assist tools [1] - New integrations with Microsoft, such as Agent 365 and Build Agent, are designed to enhance automation and governance across various platforms [3][4] Market Position - ServiceNow trades at a premium compared to other software companies, despite a soft sentiment in the SaaS space [1] - The company is diversifying its offerings beyond IT service management into customer service, HR, compliance, and industry workflows, which presents both opportunities and risks [1]