ServiceNow: The Generative AI Bear Market May Be Coming Ahead

Summary

  • ServiceNow continues to deliver strong top-line growth and profitability, outperforming software peers and consistently beating guidance.
  • Despite impressive execution, the stock trades at a pronounced premium, making it vulnerable to multiple compressions and market downturns.
  • Generative AI adoption poses a sector-wide risk, potentially leading to layoffs and impacting ServiceNow’s seat-based pricing model.
  • I expect the high valuation to offset ongoing growth, and as a result, the risk-reward profile remains unfavorable in the current environment.
  • Looking for a portfolio of ideas like this one? Members of Best Of Breed Growth Stocks get exclusive access to our subscriber-only portfolios. Learn More »

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ServiceNow (NYSE:NOW) recently delivered strong earnings results which I expect to be among the strongest among software peers. The company has shown an uncanny ability to execute on resisting decelerating growth even many years following

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This article was written by

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Julian Lin is a financial analyst. He finds undervalued companies with secular growth that appreciate over time. His approach is to look for companies with strong balance sheets and management teams in sectors with long growth runways.

Julian is the leader of the investing group Best Of Breed Growth Stocks where he only shares positions in stocks which have a large probability of delivering large alpha relative to the S&P 500. He also combines growth-oriented principles with strict valuation hurdles to add an additional layer to the conventional margin of safety. Features include: exclusive access to Julian's highest conviction picks, full stock research reports, real-time trade alerts, macro market analysis, individual industry reports, a filtered watchlist, and community chat with access to Julian 24/7. Learn more.

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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