Why ServiceNow Rallied Today, Even As Tech Stocks Fell

Shares of enterprise software giant ServiceNow (NYSE: NOW) rallied roughly 8.4% on Monday as of 3:23 p.m. EDT.

ServiceNow has been a casualty of the "SaaS-pocalypse" this year, in which the emergence of AI agents, especially Claude Code from AI firm Anthropic, is prompting investors to consider whether new AI companies could disrupt traditional enterprise software-as-a-service stocks.

Despite a declining stock price, ServiceNow has continued to deliver solid growth numbers, while its management has maintained that it sees AI as an opportunity, not a risk. Today, one Wall Street analyst agreed, issuing a very positive note on the stock.

BofA goes all-in on ServiceNow

In a note today, Bank of America analyst Tal Liani restarted coverage of ServiceNow, giving the stock a Buy rating and a $130 price target, relative to the $95 stock price at which ServiceNow started the day.

Liani believes that while AI may be disruptive to single software point solutions, ServiceNow is likely a survivor, since its software spans multiple systems within an enterprise, acting as an enterprise's connective tissue. That means ServiceNow's software suite occupies a "deeply embedded mission-critical position within enterprise workflows, serving as the system that governs, routes, approves, and audits activity across organizations, making the displacement costly and complex."

This echoes what ServiceNow management has been saying all along: that its systems are likely to be a governor of AI agents, rather than a victim of them. ServiceNow rolled out its AI Control Tower about a year ago, ahead of AI agents becoming mainstream, and has also been adapting through hybrid pricing models that blend traditional seat-based subscriptions with usage-based plans.

If ServiceNow can avoid disruption, Liani believes the stock can grow revenue by 18% to 22% through 2028, while maintaining free cash flow margins of 35% to 37%.

Image source: Getty Images.

It all adds up to a cheap stock

If Liani is correct and ServiceNow maintains the midpoint of those growth and margin figures, its 2028 revenue could land around $22.90 billion, with roughly $8.25 billion in free cash flow.

Even after today's jump, ServiceNow's market cap is only $106 billion, which is less than 13 times that free cash flow figure. That makes for a cheap stock -- provided, of course, that ServiceNow successfully adapts to the AI age.

Bank of America is an advertising partner of Motley Fool Money. Billy Duberstein and/or his client have positions in Bank of America and ServiceNow. The Motley Fool has positions in and recommends ServiceNow. The Motley Fool has a disclosure policy.