Truist Securities reiterated a 'Buy' rating on ServiceNow Inc. (NOW) with a $1,200 price target, downplaying concerns that AI adoption threatens the company’s seat-based growth model, citing strong revenue growth and profit margins.

Truist Reaffirms 'Buy' Rating on ServiceNow Amid AI Scrutiny

Truist Securities reiterated its 'Buy' rating on ServiceNow Inc. (NYSE:NOW) on September 8, setting a price target of $1,200.00. This reaffirmation comes as analysts address persistent concerns regarding the potential impact of artificial intelligence (AI) adoption on ServiceNow's traditional seat-based growth model.

The Event in Detail: Robust Performance Underpins Analyst Confidence

Truist Securities highlighted ServiceNow's strong financial performance as a key factor in its continued bullish stance. The company has demonstrated impressive gross profit margins of 78.5% and robust revenue growth of 21% over the past twelve months. Crucially, ServiceNow has indicated that it is not currently experiencing a reduction in seat counts among its customer base, directly refuting the core concern that AI efficiencies might lead to fewer required software seats.

Furthermore, ServiceNow recently secured a significant agreement with the U.S. General Services Administration (GSA) to promote AI-driven modernization across federal agencies. Known as the OneGov agreement, this deal offers federal agencies discounts of up to 70% on ServiceNow's software, with the potential to boost workflow efficiencies by up to 30%. In an effort to foster AI talent, the company has also launched an AI skills training program in Brazil in collaboration with SENAI-SP.

Analysis of Market Reaction: AI as an Enabler, Not a Threat

The analysis from Truist Securities serves to mitigate investor uncertainty surrounding the long-term viability of ServiceNow's business model in an increasingly AI-driven landscape. By emphasizing that ServiceNow is not experiencing seat count reductions and is proactively integrating AI into its offerings and strategic partnerships, analysts are framing AI as an enabler for enhanced productivity and new growth avenues, rather than a disruptive threat. The stock reacted positively to related news on September 8, with ServiceNow (NOW) shares advancing 2.79% on a trading volume of $1.53 billion.

ServiceNow has also acknowledged the potential for organizations to "bend the hiring curve" over time due to AI efficiencies, a sentiment echoed by CFO Gina Mastantuono regarding the company's internal hiring adjustments. In response to this potential future headwind, ServiceNow is strategically incorporating consumption-based elements into its business model, aiming to diversify its revenue streams and adapt to evolving customer usage patterns.

Broader Context & Implications: Strategic Shifts for Sustained Growth

ServiceNow's strategic initiatives reflect a broader trend in the enterprise digital transformation market, where AI-driven automation and integrated workflows are redefining competitive dynamics. The company's focus on expanding its AI portfolio and integrating AI-native capabilities into its core business suite, including finance and HR functions, positions it to capture a larger share of both IT-centric and hybrid workflows. The significant GSA contract underscores strong demand for AI-integrated solutions within public sector digital transformation efforts. Its NOW Assist and Plus SKUs saw consumption grow ninefold in six months, demonstrating rapid adoption of its AI-powered offerings.

Expert Commentary: Execution is Key

Analyst sentiment remains largely positive. Beyond Truist Securities, Stifel has also reiterated its 'Buy' rating for ServiceNow, noting an uptick in federal business performance in the recent quarter. However, analysts at Truist Securities offered a nuanced perspective on addressing long-term concerns:

"continued strong execution will be the only way to put this narrative fully to rest."

This highlights the importance of ServiceNow consistently delivering on its strategic objectives and demonstrating tangible benefits from its AI integrations and consumption-based model.

Looking Ahead: Monitoring Execution and AI Integration

Going forward, investors will closely monitor ServiceNow's execution on its strategic initiatives, particularly the ongoing integration of AI into its platform and the performance of its consumption-based offerings. Key factors to watch include the continued success of the GSA agreement, the expansion of AI skills training programs, and the company's ability to maintain its robust financial metrics in a dynamic market. The ability of ServiceNow to consistently demonstrate that AI enhances, rather than detracts from, its growth model will be paramount in sustaining investor confidence and reinforcing its market position.