ServiceNow (NYSE:NOW) shares are edging higher premarket Tuesday after equity research firm Macquarie raised its price target for the stock to $800 from $612, stating it is now one of its top AI picks.
Analysts at the firm provided several reasons for their bullish thesis on NOW, highlighting its "substantial" generative AI product potential. In addition, they noted their excitement about the Now Assist product and the Outerform-rated NOW's GenAI-driven pipeline.
"We believe ServiceNow's product strategy embodies our view that differentiated generative AI (GenAI) software will use GenAI as a feature, not as the core product," said the firm. "We think 'Now Assist' GenAI products can make use of core NOW Platform modules (ITSM, CSM, HR, FSM, etc.) more efficient while improving user experience - a potential reflected in ServiceNow signing 4 large GenAI deals in Q3'23 right after general availability of its Vancouver release and reporting a >300 customer pipeline for its GenAI products."
Furthermore, Macquarie believes ServiceNow's use of smaller, domain-specific generative AI models offers two key advantages in the AI arms race, including greater efficiency and, therefore, profitability and the ability to keep customer data within the NOW ecosystem.
Analysts at the firm said the pricing uplift from the company's Pro Plus SKUs presents a "substantial mid-term opportunity for ServiceNow to capitalize upon GenAI interest to sustain revenue growth."