Should You Buy ServiceNow Stock Before July 22?

ServiceNow (NYSE: NOW) is a tech powerhouse that serves more than 8,800 clients with workflow automation software. Its platform is growing quickly, but its stock is down 30% this year.

Stocks can sometimes see significant share price movements in response to earnings results as investors and markets digest the company's latest updates. ServiceNow reports on July 22, and there could be a strong market reaction one way or another.

Is now the time to buy the stock?

Image source: Getty Images.

Why the market isn't happy with ServiceNow

ServiceNow is one of the large software-as-a-service (SaaS) companies that has been beaten down by the latest movements in the artificial intelligence (AI) revolution. With the rise of agentic AI, the market is worried that many SaaS companies will become obsolete if AI agents can provide competing software services, making them superfluous.

So far, ServiceNow continues to report healthy results despite the agentic AI rollout. What's more, management has taken a proactive approach to AI and has already rolled out its own response in its Control Tower product. This platform unifies all of a company's AI tools in one place, doing what ServiceNow does best: connecting all the company's workflow processes.

While the worries are real, there's room to see how ServiceNow could come out on top. New AI features can transform how a company functions, and ServiceNow is using that to its advantage by offering an AI-first platform that offers safety and insights -- AI for your AI.

There are several advantages for companies that use AI. It can speed up processes and eliminate unnecessary labor. By integrating ServiceNow's platform, clients can move over some of their saved costs, creating a win-win for the company and ServiceNow. That's how ServiceNow is evolving in the AI era.

Can ServiceNow turn the market tide in its favor?

On July 22, investors will hear about the company's financials and outlook, and they will also get updates on how the management is thinking about the changing landscape. Through the first quarter, the company has actually been remarkably consistent in growth and profitability. Consider its revenue growth and operating margin over the past five quarters:

Data source: ServiceNow quarterly reports. YOY = Year over year.

When you consider that it's maintaining its growth rates despite an expanded bottom line, it's even more impressive.

The final piece of the puzzle is that the stock is much cheaper, even though it's maintaining its growth rates. It trades at a P/E ratio of 64, nearly half its three-year average.

Data by YCharts.

ServiceNow stock has dropped after each one of the past four quarters, which isn't a great track record for buying before the earnings report. But that doesn't mean it will happen again.

ServiceNow stock commands a premium for its strong performance and prospects, and whether it surges on July 22 or not, investors can view this as a buying opportunity. However, given its high valuation and the uncertainty about how AI will play out, I wouldn't take a large position.

Jennifer Saibil 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.