The Goldman Sachs Group, Inc.

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Bullish +65

Goldman says ServiceNow is writing a totally new playbook

📈 Goldman Sachs raised the price target for ServiceNow to $152 from $145 and maintained a buy rating following Q2 earnings.

💰 ServiceNow reported subscription revenue of $3.877 billion, representing a 24.5% year-over-year increase.

🤖 The company's AI annual contract value crossed $1 billion for the first time in the second quarter.

📉 Shares had previously fallen close to 50% over the prior year due to fears that AI agents would make subscription software obsolete.

🚀 Net new AI bookings grew more than 40% quarter over quarter, with first-time AI buyers seeing a 45% year-over-year increase in deal volume.

🛠️ ServiceNow's Level 1 IT service management product resolves 80% to 85% of service requests without human intervention.

🎙️ A new voice capability is being used by an airline customer to route roughly 5 million annual calls through ServiceNow's Voice AI.

⚠️ Goldman Sachs identified disintermediation by competing AI technologies as a specific downside risk alongside elongated sales cycles.

📊 Guggenheim upgraded the stock to buy on July 1, citing that the share price had become too cheap despite concerns over AI monetization.

🔮 ServiceNow reiterated confidence in exceeding an AI ACV target of $1.5 billion by the end of 2026.

Bullish Signals
  • Goldman Sachs raised the price target to $152 and maintained a buy rating, signaling strong institutional confidence in the company's strategic pivot.
  • Subscription revenue grew 24.5% year over year to $3.877 billion, demonstrating robust demand despite market fears of a 'SaaSpocalypse'.
  • The AI annual contract value crossed $1 billion for the first time, validating the company's core thesis that it is essential infrastructure for enterprise AI.
  • Net new AI bookings surged more than 40% quarter over quarter, indicating accelerating adoption and growth in this high-value segment.
  • The number of customers running AI in production increased ninefold over nine months, showing rapid expansion of the AI user base.
  • ServiceNow's foundational IT service management product now resolves 80% to 85% of requests autonomously, securing its original business model against disruption.
  • A major airline customer is routing all roughly 5 million annual calls through ServiceNow's Voice AI, proving scalability in complex voice use cases.
  • Guggenheim upgraded the stock to buy on July 1, providing additional analyst support driven by valuation attractiveness.
Risk Factors
  • Goldman Sachs explicitly lists disintermediation by competing AI technologies as a named downside risk to the company's growth thesis.
  • Guggenheim analyst John DiFucci warns that AI monetization could disappoint, suggesting potential revenue shortfalls in this new segment.
  • DiFucci views AI as a real threat to the traditional software model, indicating lingering skepticism about the sustainability of the subscription business.
  • The stock experienced violent volatility with a 50% drop prior to earnings and a sharp rally after, reflecting unsettled investor sentiment on how to value AI exposure.
  • Goldman analysts state that the rerating depends on proving relevance inside the enterprise AI stack rather than just beating quarterly guidance, highlighting a high bar for future performance.
Full Analysis
Goldman Sachs raised its price target for ServiceNow to $152 from $145 following the company's second-quarter earnings report released on July 22, maintaining a buy rating. The upgrade was driven by ServiceNow crossing a significant milestone where its annual contract value (ACV) derived from AI solutions exceeded $1 billion in the quarter, surpassing analyst expectations for the company's relevance within the enterprise AI stack. Despite earlier fears of a 'SaaSpocalypse' that caused shares to fall nearly 50% heading into the report, ServiceNow beat estimates on revenue, earnings, and bookings. Subscription revenue rose 24.5% year over year to $3.877 billion, validating the company's ability to maintain its subscription model even as autonomous agents handle tasks previously managed by human support. Goldman analysts highlighted that AI deployments deepen customer entrenchment, making AI revenue more valuable than core workflow revenue. Key metrics include net new AI bookings growing over 40% quarter over quarter and a ninefold increase in customers running AI in production over nine months. ServiceNow's Level 1 IT service management product now resolves 80% to 85% of requests without human intervention, proving its foundational role is secure. However, the stock faces mixed sentiment with Guggenheim upgrading on valuation grounds while warning of potential monetization disappointment. Goldman explicitly lists disintermediation by competing AI technologies as a downside risk, though CEO Bill McDermott argues most enterprise AI runs on cheaper, purpose-built models rather than frontier systems that could replace ServiceNow's platform.