TLDR: Morgan Stanley has upgraded ServiceNow’s stock to ‘Overweight’ with a new price target of $1,250, asserting that market fears regarding generative AI and federal spending impacts are overstated. The firm highlights ServiceNow’s robust fundamentals, including projected 20% subscription revenue growth and over 20% free cash flow growth through fiscal 2027, bolstered by its new ‘Zurich’ AI platform.
Shares of enterprise workflow automation company ServiceNow (NYSE:NOW) saw a notable increase of 1.5% in morning trading on September 24, 2025, following an upgrade from Morgan Stanley. The investment firm elevated ServiceNow’s stock rating to ‘Overweight’ from ‘Equal Weight’ and set a new Street-high price target of $1,250, up from $1,040. This move signals Morgan Stanley’s confidence in ServiceNow’s resilience against perceived market risks.
According to a research note from analyst Keith Weiss, the company’s consistent performance has been overshadowed by investor concerns related to the impact of generative artificial intelligence (AI) and tighter federal spending. However, Morgan Stanley believes these risks are exaggerated, emphasizing ServiceNow’s strong positioning to achieve its financial objectives. The firm projects a 20% increase in subscriptions and over 20% growth in free cash flow through fiscal 2027, citing the company’s ability to deliver on its generative AI capabilities as a key driver for attractive investor opportunities.
ServiceNow recently reinforced its commitment to AI innovation with the unveiling of its new ‘Zurich’ platform on September 10. This platform introduces breakthrough enterprise AI features, including faster multi-agentic AI development, enhanced enterprise-wide AI platform security, and reimagined autonomous workflows. A significant aspect of the Zurich platform is the ‘vibe coding’ capability, which allows employees to transform ideas into production-ready applications in mere seconds using natural language. This aligns with Gartner’s prediction that over 60% of enterprises will adopt AI agent development platforms by 2029 to automate complex workflows.
Furthermore, ServiceNow’s federal footprint is expanding through the ‘OneGov’ agreement, which offers government agencies discounts of up to 70% on its Information Technology Service Management (ITSM) software. This initiative is expected to boost government workflow efficiencies by as much as 30%.
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Despite the recent upgrade, ServiceNow’s stock has faced headwinds, being down 10.8% since the beginning of the year. Trading at $940.70 per share, it remains 19.6% below its 52-week high of $1,170 recorded in January 2025. Nevertheless, long-term investors have seen substantial returns, with a $1,000 investment five years ago now valued at $2,045. The broader software sector has experienced a selloff due to growing worries that AI tools could disrupt established businesses by enabling faster and cheaper application development, a fear that Morgan Stanley believes is misplaced for ServiceNow.
