Why Bernstein Calls ServiceNow (NOW) a Discount Large-Cap Growth Stock

Core Viewpoint - ServiceNow, Inc. is recognized as a promising investment opportunity in the AI sector, with analysts highlighting its undervaluation and potential for growth driven by AI token renewals [1][2]. Group 1: Investment Potential - Bernstein analyst Peter Weed reiterated an Outperform rating on ServiceNow with a price target of $219.00, indicating belief in the stock's undervaluation [1]. - The firm describes ServiceNow as a "discount large cap growth" opportunity, suggesting it is relatively cheap compared to other large-cap software companies with market capitalizations over $50 billion [2]. - Analysts noted that the premium historically assigned to high-growth software has diminished, resulting in ServiceNow trading at lower multiples despite increasing growth forecasts for fiscal 2028 [2]. Group 2: Revenue Projections - Bernstein projects a 30 basis point currency-constant subscription revenue beat for ServiceNow, anticipating that AI will reach $1.2 billion in annual contract value by FY26, exceeding the company's guidance of $1 billion [3]. - There is potential conservatism in the company's model, as it does not account for possible early consumption-driven renewals from customers in the FY24 AI cohort, which could lead to additional revenue in the second half of FY26 [4]. Group 3: Market Context - The analysis suggests that while ServiceNow has investment potential, other AI stocks may offer greater upside with less downside risk, indicating a competitive landscape in the AI investment space [5].