Is It Too Late to Buy ServiceNow Stock?

Shares of workflow automation expert ServiceNow (NYSE: NOW) have enjoyed excellent gains over the past year. The stock rose from a 52-week low of $527.24 last October to hit a high of $815.32 in 2024.

The emergence of artificial intelligence (AI) into the mainstream helped to propel ServiceNow shares skyward with the stock exceeding $800 as recently as July 5. Given the run-up in price, is it too late to invest in ServiceNow?

Answering that question requires digging into the company's performance. This can help you to assess whether ServiceNow stock makes sense as an investment over the long haul.

How AI factors into ServiceNow's success

Many business leaders see artificial intelligence as an imperative for their organizations, creating increased demand for ServiceNow's AI offerings. Its cloud-based Now platform helps clients streamline many routine business processes and provides popular AI features.

Explaining the client demand ServiceNow is seeing, CEO Bill McDermott said on an earnings call in January, "We are, in fact, in a new era of business transformation powered by AI." This AI-fueled demand led to ServiceNow experiencing strong financial performance. In the first quarter, the company hit $2.6 billion in revenue, a 24% increase year over year.

ServiceNow's Q1 results bode well for its performance in 2024 by continuing the sales growth achieved last year. The company exited 2023 with $9 billion in sales, representing a 24% hike up from 2022. And 2023 was just the latest in a multi-year track record of rising revenue.

Data by YCharts .

ServiceNow's growth strategy

Moreover, artificial intelligence is only one of the factors driving ServiceNow's revenue growth. Aside from customer demand for its AI features, ServiceNow is increasing revenue by broadening the capabilities of its Now platform. The company historically focused on improving workflows for the IT industry, but has expanded into customer service, sales, legal, and other sectors.

ServiceNow is also growing its international revenue. Granted, North America accounts for the bulk of the company's sales, contributing $1.6 billion of its $2.6 billion in Q1. However, Q1 revenue from the rest of the world increased to $966 million from $752 million in 2023. This was a continuation of a trend in rising international income, which has increased annually for the past three years.

The company uses a software-as-a-service ( SaaS ) subscription model to generate predictable recurring revenue. Its SaaS subscriptions accounted for $2.5 billion of its $2.6 billion in Q1 sales. ServiceNow expects subscription income to continue growing. Its Q2 outlook forecasts 22% year-over-year growth in subscription sales to $2.5 billion.

For the full year, ServiceNow estimates achieving subscription revenue of $10.6 billion, up from 2023's $8.7 billion.

Other considerations with ServiceNow stock

The company's strong revenue growth helped it to generate outstanding financials. In Q1, its free cash flow hit $1.2 billion, a 66% jump up from the previous year's $737 million.

In addition, ServiceNow exited Q1 with an impressive balance sheet. Total assets were $17.5 billion with $8.8 billion in cash and investments. Total liabilities were $9.4 billion, and $5.8 billion of that was deferred revenue , which will eventually be recognized as income.

ServiceNow's robust financials put it in a position to continue strengthening its software platform, and capturing market share internationally. These factors make it a compelling stock to own.

Another consideration is what Wall Street thinks. The current consensus among Wall Street analysts is a buy rating for ServiceNow stock with a median share price of $850.

That said, analysts for Guggenheim recently said they believe the boon delivered by AI won't last, downgrading ServiceNow stock , and causing the share price to drop. The downbeat forecast seems premature to me given that the AI market is still in its infancy.

Estimates predict the AI sector will grow from $136 billion in 2023 to $827 billion by 2030. This provides a multi-year tailwind for ServiceNow, and means the current dip in its stock price creates a buy opportunity.

With the company steadily expanding its platform features, growing international sales, and getting a boost from AI demand, ServiceNow looks poised for years of revenue growth, making it a good long-term investment .

Robert Izquierdo 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 .