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  • Writer's pictureRealFacts Editorial Team

ServiceNow Plummets on Analyst Downgrade

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Shares of ServiceNow (NOW) dropped on Monday following a downgrade to a sell rating by Guggenheim analysts. The downgrade has also affected other enterprise software stocks on Monday. Ryan Deffenbaugh, Investors Business Daily author reported, “Guggenheim analyst John DiFucci flipped his outlook on ServiceNow stock from neutral to sell in a client note dated July 7. ServiceNow reports second quarter earnings on July 24. DiFucci expects the quarterly results will ‘be fine’ but there is a ‘material risk that (ServiceNow) will have to lower top-line subscription guidance for 2024,’ he wrote.” Difucci also expressed concerns about generative AI sales and has doubts about significant growth in this area until 2025 or later. 

Due to these concerns, Guggenheim holds a price target of $640 for the stock implying an over 20% downside compared to Friday’s closing price of $805. ServiceNow shares fell 4.6% to $768 in response to the downgrade. While the stock has seen an 8.5% increase this year and a 39% rise over the past 12 months, this downgrade introduces new possible challenges. In contrast to this sell rating, many other analysts remain positive about the company. Specifically, 38 analysts have buy ratings on ServiceNow, while three have neutral ratings. 

The report also influenced other enterprise software stocks, with companies like Salesforce, Datadog, Workday, and Palo Alto Networks experiencing declines. The iShares Expanded Tech-Software ETF (IGV), which includes over 100 enterprise software firms, dropped over 1% in morning trading. This downgrade reflects broader concerns about the immediate financial benefits of generative AI for enterprise software companies, as many are still in the experimental phase with the technology. Investors should closely monitor how the AI wave impacts enterprise software companies to see if it will lead to improved revenues or fall short of expectations.


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