ServiceNow stock is the new Best Idea for 2025 at TD Cowen

Investing.com -- ServiceNow (NYSE:NOW) has been named a Best Idea for 2025 by TD Cowen in a note Tuesday, with the bank citing its promising position in the generative AI (GenAI) product cycle.

Analysts raised their price target for the stock to $1,300 from $1,025, emphasizing strong AI-driven growth prospects and monetization strategies.

"NOW is the leader in Enterprise Service Mgmt, attacking a ~$500b TAM. We think NOW has one of the best approaches to GenAI monetization across the SaaS layer," wrote the bank.

They explain that its innovative GenAI product, Pro+, has delivered incremental spending and adoption within its first year.

New data solutions, Workflow Data Fabric and RaptorDB Pro, set for release in early 2025, are expected to further enhance ServiceNow's capabilities in building "Agentic AI Networks."

These networks aim to power autonomous workflows across enterprise systems.

ServiceNow's strategy leverages domain-specific language models over general foundation LLMs, ensuring cost-efficient and high-accuracy performance.

TD Cowen says the hybrid pricing model, combining subscription and consumption-based fees, further supports this approach.

Looking ahead, TD Cowen projects a 30% uplift in annual contract value (ACV) driven by Pro+ adoption, with mid-30% revenue growth in the front-office segment, potentially reaching $2.5 billion by FY26.

Additionally, increased sales capacity and growing partnerships for Pro+ are expected to contribute significantly to the company's momentum.

Despite a 60% rise in its stock this year, TD Cowen believes ServiceNow's best-in-class "Rule of 40" performance, at 52%, justifies its premium valuation, making it a top pick for 2025.