Sat. May 25th, 2024

As cloud-base customer service leader ServiceNow (NOW) can attest, the artificial intelligence boom is not over. On the contrary, companies across virtually all sectors continue to embed AI technologies into their platforms and workflows. Rising demand for the chatbots and generative AI has the relative strength line for NOW stock hitting new highs.




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Strong technical and fundamental performance has earned ServiceNow as spot on the IBD 50, IBD Big Cap 20 and the IBD Leaderboard watchlist. And the promise and potential of AI builds on that.

ServiceNow, a leader in cloud-based customer support and workflow automation, has now embedded generative AI across all workflows on its platform. Last month’s launch of the Now Assist family of solutions marks a major expansion of the Now Platform. The enhancements aim to help accelerate productivity, improve experiences, and increase agility for customers.

In announcing the enhancements, ServiceNow cited a Goldman Sachs report noting that generative AI could lift human productivity, adding almost $7 trillion to global GDP in the next decade.

In addition to generative AI, ServiceNow continues to pursue innovations in intelligent chatbots, performance analytics and zero trust security.

While ServiceNow did not make this month’s list of new buys by the best mutual funds, institutional investors continue to show demand for the generative AI and enterprise software leader. In fact, 41 funds with an A+ or A rating from IBD have a position in NOW stock. Plus, ServiceNow sports a strong 1.6 up/down volume ratio, where any number above 1.0 indicates demand for the stock.

AI And Cloud Fuel Growth For ServiceNow

Roughly 85% of the Fortune 500 use ServiceNow and the cloud-based enterprise software firm sports an impressive 98% renewal rate. That has the company continuing to report strong and steady quarterly performance.

ServiceNow reported Q3 results on Oct. 25, posting 25% year-over-year sales growth to $2.29 billion. Over the last eight quarters, the company has now generated solid and steady revenue gains ranging from 21% to 29%.

In terms of bottom-line growth, third-quarter results marked a second quarter of accelerating profits. ServiceNow boosted earnings to $2.92 a share, a 49% rise of the prior-year quarter.

For the full year, Wall Street forecasts 8% earnings growth, followed by a 22% gain in 2024.

Further illustrating the company’s efficiency, ServiceNow earns an SMR Rating of “A” in IBD Stock Checkup. A 26.3% annual pretax profit margin and 35.4% annual return on equity and a low debt-to-equity ratio boost that score.

As AI Enhances Customer Chats, NOW Stock Eyes Voluminous Support

With an eye toward a 614.36 buy point, NOW stock continues to test support and resistance at its 50-day moving average. ServiceNow currently trades just below that line.

As the artificial intelligence play continues to consolidate, note the spikes in volume. Around its Q3 earnings report and earlier, ServiceNow flashed multiple spikes in upside volume. However, several days of above-average downside volume have also appeared, a sign of the choppy uncertainty seen in the market indexes as a whole.

So the wait-and-see environment of the general market applies to NOW stock as well. Its track record of solid fundamental and technical performance, as well as its tapping of AI trends, earns ServiceNow a spot on investors’ watchlists. Look for NOW stock to keep outpacing the market, as evidenced by its stellar RS line, and drive a breakout when the indexes turn around.

Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.

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