ServiceNow's FY24 outperformance could be driven by AI - Bernstein

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ServiceNow's FY24 outperformance could be driven by AI - Bernstein

Bernstein analysts said in a note to clients Wednesday that AI could drive ServiceNow's (NYSE: NOW ) outperformance in FY24.

The analysts, who have an Outperform rating and $665 price target on the stock, told investors that there is "excitement for NOW's soon-to-be shipped LLM AI-enabled functionality, including productivity-enhancing 'case summarization' functionality for ITSM, CSM, and HRSD products and "text-to-code" for Creator workflows."

"Yet consensus for 2024 GAAP subscription revenue has hardly budged over the last couple quarters, with every quarter in '24 at ~22% YoY growth expectations (more than 250 bps below our current model)," they wrote.

"Release timing doesn't support revenue recognition in 2023 (although brand-wise, it may support confidence in continued investment in NOW). But in 2024 it should help growth, perhaps with strong uptake in existing Pro customers. It may even drive incremental Pro penetration - e.g., Pro is in ~40% of ITSM customers today, and AI may drive adoption higher," the analysts added.

The analysts believe NOW's net revenue growth may benefit more from modest AI adoption. In addition, they stated that NOW's sales productivity may rise more than 10% when deal elongation resides.

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