ServiceNow (NYSE:NOW) shares climbed 3.6% in early trading Wednesday, adding approximately $3.7 billion in market value, after Guggenheim Securities upgraded the stock from Neutral to Buy. The upgrade, led by analyst John DiFucci, set a price target of $125 per share, representing a potential 21.6% gain from the last closing price of $102.81.
Guggenheim's move marks a significant shift from its previous stance. The firm had maintained a Neutral rating since December 2025, during which ServiceNow shares fell 35%. In contrast, the iShares Expanded Tech-Software Sector ETF (IGV) declined 16% over the same period, while the S&P 500 gained 10%. The upgrade reflects a belief that the recent selloff, driven by AI-related concerns, has been overdone.
DiFucci emphasized that the upgrade is primarily valuation-driven, rather than a bet on AI-driven growth. He described the current price as "an attractive opportunity" to invest in a profitable company with double-digit growth potential. However, he stopped short of calling ServiceNow an AI beneficiary, noting that AI remains a "major threat" for software companies but not a "death knell."
ServiceNow's first-quarter results support the bullish case. Subscription revenue rose 22% year-over-year to $3.671 billion, while current remaining performance obligations (cRPO) grew 22.5% to $12.64 billion. The company also reported that customers paying over $1 million annually for its Now Assist AI platform surged more than 130%. CEO Bill McDermott said the results "beat the high end of our guidance once again."
Despite these positives, risks remain. In April, Reuters reported delays in large government deals in the Middle East, which trimmed about 75 basis points from subscription revenue growth. Additionally, the $7.75 billion acquisition of Armis could pressure 2026 free cash flow margins by roughly 200 basis points. COO Amit Zavery downplayed concerns, telling Reuters, "I am not worried about the narrative," and highlighted a shift toward usage-based billing.
Guggenheim's $125 target is below the Wall Street consensus. According to the Wall Street Journal, the median analyst price target is $135, with an average of $140.38. Of 51 analysts covering ServiceNow, 41 rate it a Buy, five Overweight, three Hold, and one Sell. The upgrade suggests that while the stock has underperformed, the risk-reward balance has improved.
Trading volume reached 4.4 million shares by mid-morning, well above average. The broader software sector also gained, with the IGV ETF up 2.0%. However, major indexes were mixed, with the S&P 500 (SPY) down 0.4% and the Nasdaq (QQQ) off 1.0%, highlighting the stock's relative strength.
Looking ahead, ServiceNow's second-quarter subscription revenue guidance of $3.815 billion to $3.820 billion exceeds the LSEG consensus of $3.75 billion, providing further support for the stock. The real test, however, will be whether the company can sustain its growth trajectory amid AI disruption and macroeconomic headwinds.
