Needham & Company has raised its price target on ServiceNow (NYSE: NOW) to $155 from $115, while reiterating a Buy rating. The new target, based on Friday's closing price of $132.53, suggests a potential upside of approximately 17%. This adjustment comes after the stock has already surged 37% since the company's second-quarter earnings report, reflecting growing investor optimism around the company's AI-driven growth prospects.
Analyst's Bullish Case
According to a note published on September 11, the analyst's positive stance is supported by improving client conversations and increasing demand for AI governance solutions. These factors, combined with ServiceNow's strong second-quarter performance, have prompted the upward revision. The company reported subscription revenue of $3.877 billion for Q2, up 24.5% year-over-year, and its AI products have surpassed $1 billion in annual contract value (ACV).
Target Price Implications
The $40 increase in the price target is notable, but it also highlights the stock's recent run. At the current price, the stock has already captured 42% of the distance between the old and new targets, meaning it needs to gain an additional $22.47 to reach $155. While this arithmetic does not validate the target, it reflects the analyst's assumptions about future growth, margins, and the multiple investors are willing to pay. Notably, this target sits below BTIG's recent $170 target, underscoring the range of opinions on Wall Street.
Strong Q2 Results and AI Momentum
ServiceNow's Q2 results were robust, with the company closing 123 deals worth over $1 million in net new ACV, a nearly 40% increase from the prior year. The company also raised its full-year subscription revenue guidance to $15.760-$15.780 billion, representing 22.5% reported growth and 21% constant currency growth. These figures have reassured investors that enterprise software remains relevant despite fears that generative AI might disrupt established systems.
cRPO: The Key Metric to Watch
Current remaining performance obligations (cRPO), which measures contracted revenue expected to be recognized over the next 12 months, reached $13.20 billion in June, up 21% year-over-year. For Q3, management guided to 19.5% reported cRPO growth and 20% in constant currency. The planned step-down in growth rate sets a higher-quality test than commentary about AI interest. If AI governance and agentic workflows are expanding wallet share, cRPO should eventually hold or reaccelerate without relying on favorable FX or unusually large early renewals.
However, the June-quarter filing adds a timing caveat. A larger mix of 12-month contracts in Q3 can make RPO and cRPO more variable until those agreements renew. Additionally, stronger U.S. federal demand moved some on-premise subscription revenue from Q3 into Q2.
Margin Considerations
Margins are another critical factor. ServiceNow forecast a 31% non-GAAP operating margin for Q3 and 31.5% for the full year, along with a 35% non-GAAP free-cash-flow margin. Investors should keep in mind the significant gap between GAAP and non-GAAP figures: Q2 GAAP operating margin was just 4%, versus 29.5% on a non-GAAP basis.
Bear Case and Outlook
The strongest bear argument is that the post-earnings rally has already priced in early AI success. The next earnings report must validate the $155 thesis through cRPO growth, large-deal volume, and margin delivery. Simply reporting another increase in AI ACV would leave the valuation question open. With the stock at $132.53, there is less room for a weak quarter than before July's results, making the upcoming report crucial for sustaining investor confidence.
