Why ServiceNow Tumbled by Almost 8% on Thursday
Key Points
An analyst enacted a significant price target cut on the enterprise software specialist.
Interestingly, he maintained his bullish recommendation.
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Few investors were willing to buy software stocks on Thursday, as the rout in such titles extended into that trading session. That, plus a severe analyst price target cut, put the hurt on ServiceNow's (NYSE: NOW) shares, pushing them down by nearly 8% on the day.
Fire sale
With several famous tech companies unveiling plans to boost their spending on next-generation artificial intelligence (AI) solutions, software developers are hardly the flavor of the moment on the market. ServiceNow's stock in trade is enterprise software, and these days the mere association with software is enough for investors to shun a stock -- no matter how enthusiastically it's embraced AI, as in the case of ServiceNow.
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It doesn't help when an analyst gets less bullish on a company's prospects. So it was with ServiceNow, which was the subject of that price target cut Thursday morning.
The cutter was Truist Securities' W. Miller Jump, who took a chainsaw to his fair value assessment on the stock. To him, the company is now worth only $175 per share; his previous level was $240. Despite the significant downward adjustment, Jump maintained his buy recommendation on the shares.
Jump's move was part of a broader analysis of infrastructure software stocks, according to reports. In that take, the pundit expressed concern that companies with "seat-based" business models have been notable underperformers lately, not least because they are vulnerable to AI disruption.
More cutting-edge than some might think
We should bear in mind that ServiceNow has been plying its trade for years and has, at this point, built an impressively diverse and loyal customer base.
No matter how far AI makes inroads into the current enterprise software space, I believe those clients will be inclined to stick with the company's offerings. Also, it's aggressively incorporating AI into its platform anyway. So to some extent, it's actually an AI play, and hardly a stuck-in-the-past software business. I'd consider the sell-off a good opportunity to get this stock at a relative bargain.
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Eric Volkman 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.
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