Agent of Change
In this edition of the Smart Investor newsletter, we spotlight the stock of a leading cloud‑native data and AI specialist. We are not making any Portfolio sales this week, given the ongoing wave of earnings releases. But first, let’s dive into the latest portfolio news and updates.
1
Portfolio News and Updates
❖ On July 23, 2025, the White House released “Winning the AI Competition: The U.S. AI Action Plan,” centered on three pillars – accelerating innovation, building AI infrastructure in the U.S., and making American hardware and software the global standard for AI innovation. The administration said most of the proposed policies – including deregulation, faster permitting for data centers and chip facilities, and measures to boost power infrastructure – can be implemented within 6 to 12 months, giving the U.S. technology sector immediate tailwinds.
Analysts expect the biggest beneficiaries to be companies across the data center supply chain – including chipmakers, infrastructure providers, hyperscale cloud operators, and data center owners and developers – as well as electrical equipment manufacturers, liquid cooling specialists, AI software vendors, cybersecurity firms, IT services and consultants, and cloud‑native data specialists. The plan also calls for the development of reliable, dispatchable power sources such as nuclear and advanced geothermal energy while improving grid stability and transmission efficiency.
Current Smart Portfolio holdings likely to benefit include IBM (IBM), Broadcom (AVGO), Alphabet (GOOGL), Microsoft (MSFT), Cisco (CSCO), Qualcomm (QCOM), Arista Networks (ANET), Oracle (ORCL), Vertiv (VRT), Salesforce (CRM), CrowdStrike (CRWD), Leidos (LDOS), Cognizant (CTSH), Emerson Electric (EMR), and EMCOR Group (EME).
❖ IBM (IBM) reported a solid quarter, beating revenue and EPS estimates by a wide margin. Sales rose 8% year‑over‑year, or 5% in constant currency, reaching $16.98 billion versus $16.6 billion expected. Adjusted EPS was $2.80, ahead of the $2.65 consensus. Chairman Arvind Krishna said IBM remains “highly differentiated” thanks to innovation depth and domain expertise – increasingly relevant as clients adopt and scale AI. AI was a clear highlight, with new watsonx releases, deeper integrations with AWS, Oracle (ORCL), and Salesforce (CRM), and rising enterprise adoption. IBM’s generative AI book of business grew to over $7.5 billion from $6 billion in Q1 2025 and could accelerate further as Power‑11 servers roll out for AI‑focused data centers.
Q2 delivered broad growth: Infrastructure rose 14%, Software 10% and Consulting 3%. Red Hat – central to IBM’s hybrid cloud strategy – grew 16%, helping total hybrid cloud revenue climb 21%, while Automation also rose 16%. Infrastructure was boosted by a 70% surge in IBM Z mainframe sales as the z17 launch gained traction. The Software segment, a key pillar of IBM’s transformation, came in light, with sales of $7.39 billion missing the $7.49 billion consensus despite 10% YoY growth. IBM raised free cash flow guidance to over $13.5 billion but left its full‑year revenue outlook unchanged at 5%+ constant‑currency growth plus a 1.5‑point FX tailwind. Analysts had hoped for a bump to 5.6%, so the lack of an upgrade – combined with the software miss – weighed on sentiment and sent the stock lower.
The reaction looks overdone. The Software miss largely reflected customers prioritizing new AI‑enabled mainframes over software tied to older systems – a normal pattern early in a mainframe cycle. This shift boosted Infrastructure but left transaction‑processing software flat. With the stock up more than 50% in the past year, investors were quick to react, but management remains confident Software can deliver low double‑digit growth in 2025. Analysts also expect transaction‑processing to rebound next quarter. Given AI and mainframe momentum, IBM’s guidance may prove conservative.
Following the report, JPMorgan raised its price target on IBM from $244 to $290, RBC Capital lifted its target from $285 to $315, while BofA slightly trimmed its target to $310 from $320, citing near‑term software constraints despite long‑term bullishness. Melius Research, which holds the Street‑high target of $350, called the sell‑off a buying opportunity, citing IBM’s early mainframe‑cycle position and expected software acceleration via Red Hat and Automation. RBC reiterated that the weakness is temporary, while Wedbush said IBM is well‑placed to benefit from rising demand for hybrid and AI‑centric workloads.
❖ While the exaggerated negative reaction to IBM results dragged down the DJIA, Alphabet’s (GOOGL) Q2 earnings triggered a wave of AI optimism – almost single‑handedly lifting the S&P 500 when it delivered its quarterly report. Alphabet again beat revenue and EPS consensus, but that has become routine and was not the main reason for the market’s enthusiasm.
Revenue grew 14% year‑over‑year to $96.4 billion, ahead of the $94.0 billion expected, while adjusted EPS jumped 22% to $2.31 versus the $2.18 that had been estimated. Search revenue increased 12% and YouTube advertising rose 13%. Operating income climbed 14% with the margin steady at 32.4% – showing Alphabet can sustain profitability while heavily investing in R&D to drive growth.
Investor excitement centered on a $10 billion hike in AI capex to $85 billion for 2025, with further increases planned in 2026. Earlier in the year, a similar announcement drew skepticism over high spending and uncertain monetization – but Alphabet has now proved these investments are delivering tangible returns. The new outlook reflects heavier spending on servers and faster data‑center construction to meet AI and cloud demand.
In Q2, Google Cloud revenue surged 32% to $13.6 billion, well above expectations, with operating income more than doubling and strong performance across core and AI products. Cloud’s annual run‑rate passed $50 billion as demand for AI products soared – Gemini model usage grew 35x year‑over‑year – and the backlog expanded to $106 billion.
User adoption of AI‑powered products also accelerated. AI Overviews reached more than 2 billion monthly users, while the Gemini assistant climbed to 450 million monthly actives. Management said monetization of AI features is on par with traditional formats, strengthening Alphabet’s ability to build new ad products. CEO Sundar Pichai stressed that “AI is positively impacting every part of the business” – from Search to YouTube to Cloud – underscoring its role in driving engagement and ad revenue.
Wall Street responded decisively. More than 20 major analysts – including Truist, Piper Sandler, Goldman Sachs, Morgan Stanley, J.P. Morgan, and others – raised price targets following the results. Evercore ISI set the Street‑high at $240, up from $205, praising Alphabet’s consistent segment growth, robust margins and exceptional cloud performance while saying “this AI investment and product cycle is for real.”
As the AI arms race intensifies, analysts expect other hyperscalers to follow Alphabet’s lead. Just two quarters ago many questioned whether AI spending would pay off – now several argue the tech giants must invest even more to remain competitive. Wolfe Research said the competition for AI dominance is only in its first innings.
In other company news, Google Cloud scored a significant win with a $1.2 billion, five‑year deal to provide cloud‑computing services to ServiceNow (NOW). While not a needle‑mover for overall revenue, it is among Google Cloud’s largest public enterprise commitments to date. The deal’s importance is primarily strategic, as it validates Google Cloud’s competitiveness in high‑value enterprise workloads and strengthens its position against AWS and Azure. It also deepens ties with ServiceNow, a widely used platform in corporate IT operations, potentially opening the door to further joint go‑to‑market opportunities.
❖ General Dynamics (GD) reported strong Q2 2025 results, with revenue up 8.9% to $13 billion and diluted EPS rising 14.7% to $3.74, both ahead of consensus. Operating income increased nearly 13%, driven by growth across all four segments, led by a 22% gain in Marine Systems. The company generated $1.6 billion in operating cash flow – 158% of net earnings – while reducing total debt by almost $900 million. Orders reached $28.3 billion, pushing backlog to a record $103.7 billion.
Management raised its full‑year outlook, citing robust demand in defense and aerospace markets and expanding margins. CEO Phebe Novakovic noted that all segments delivered higher revenue and earnings in the first half, with companywide margins up 50 basis points year over year. The updated guidance reflects confidence in sustained order momentum, especially in Marine and Aerospace, as governments continue to invest in naval platforms and business jet demand stays solid. GD now expects FY 2025 revenue of about $51.2 billion – $900 million above prior guidance – while keeping the operating‑margin outlook at 10.3%. The EPS forecast was raised from $14.75-14.85 to $15.05-15.15. Several Wall Street analysts – including Susquehanna, Bernstein and J.P. Morgan – raised price targets following the release, while Wolfe Research upgraded the stock to “Buy” from “Hold”.
❖ Amphenol (APH) delivered a standout Q2 2025, handily beating Wall Street expectations and raising its outlook. The company’s robust performance was driven by strong organic growth across all end markets, particularly in the IT datacom market, where sales grew by 133% year-over-year, fueled by demand for AI applications.
Revenue surged 56.5% year‑over‑year to a record $5.65 billion, exceeding the high end of guidance and topping the consensus. Adjusted EPS came in at $0.81, up 84% YoY and well above the $0.66 consensus. Operating margin rose to 25.6%, supported by strong organic growth and contributions from the recent Narda‑MITEQ acquisition. Free cash flow reached an impressive $1.1 billion, while the company returned $360 million through buybacks and dividends. During the quarter, the company completed the acquisition of Narda-MITEQ, a leading provider of active RF and microwave components, enhancing its defense market offerings.
Looking ahead, Amphenol raised its Q3 guidance: it now expects sales of $5.4 billion to $5.5 billion (up 34-36% YoY), above the $5.25 billion consensus. Adjusted EPS is projected at $0.77-0.79, exceeding analyst forecasts of $0.69 and reflecting YoY growth of 54-56%. Following the report, key Wall Street firms such as Evercore ISI, JP Morgan, UBS and Citigroup all raised their price targets, maintaining positive ratings.
❖ Oracle (ORCL) has announced an agreement with Bloom Energy, a fuel‑cell power provider, under which Bloom will supply onsite power to select Oracle Cloud Infrastructure (OCI) data centers. As AI and cloud workloads surge, data centers face growing power‑supply constraints, and cloud leaders are increasingly working to secure reliable energy. Bloom Energy’s fuel‑cell deployment – capable of powering an entire data center within 90 days – underscores Oracle’s forward‑thinking approach to securing reliable power capacity without relying on traditional grid upgrades.
The deal supports OCI’s expansion of AI‑related workloads – a key growth driver for Oracle’s long‑term cloud ambitions – and strengthens its competitive position against AWS, Azure and Google Cloud as AI demand accelerates. Onsite power also reduces exposure to grid limitations or outages, an increasing concern for hyperscalers. The agreement positions Oracle as proactive in addressing energy constraints and could improve its standing with enterprise customers seeking reliability.
❖ Bank of New York Mellon, aka BNY (BK) and Goldman Sachs have launched a first‑of‑its‑kind initiative to tokenize records of money market fund (MMF) ownership, marking a step toward bringing blockchain technology into mainstream fund administration. The collaboration will allow investors to subscribe to and redeem MMF shares via BNY’s LiquidityDirect platform, with mirrored record tokenization supported by Goldman’s GS DAP blockchain. BlackRock (BLK), Fidelity, Federated Hermes, and Goldman Sachs Asset Management are among the managers participating in the launch.
For BNY Mellon, the move is strategically significant. By pioneering tokenized fund records, the bank is positioning itself at the forefront of the shift toward digital asset infrastructure. As tokenization gains traction, BNY could strengthen its role as a bridge between traditional finance and emerging blockchain‑based markets – a differentiator that may help attract institutional clients seeking advanced settlement and record‑keeping solutions. While the short‑term revenue impact is limited, successful adoption could expand BNY’s long‑term opportunities in asset servicing, enhance its reputation for innovation, and provide valuable experience as tokenized securities and real‑time financial systems move closer to widespread adoption.
❖ Visa (V) reported a solid third-quarter performance for fiscal 2025, exceeding Wall Street expectations on both earnings and revenue. Adjusted earnings per share rose 23% year-over-year to $2.98, beating the consensus estimate of $2.85, while revenue climbed 14% to $10.2 billion, ahead of forecasts of roughly $9.85 billion. The company continued to demonstrate strength in its core operations, with payment volume rising 8% and cross-border volume, excluding intra-European transactions, increasing by 11% in constant currency. The total number of transactions processed increased 10% to $65.4 billion, highlighting steady demand across its global network.
Looking ahead, Visa reaffirmed its fourth-quarter guidance, projecting high single-digit to low double-digit revenue growth and EPS growth in the high single digits. For the full year, it expects low double-digit revenue growth and EPS growth in the low teens, slightly below analyst expectations. Management pointed to resilient consumer spending but noted a more measured growth outlook. Visa continues to invest in innovation, including AI and stablecoins, while maintaining a disciplined approach to capital allocation. During the quarter, the company repurchased 14 million shares for $4.8 billion, and as of June 30, it had $29.8 billion remaining under its buyback authorization.
1
1
Portfolio Stocks Under Review
❖ We are keeping Roper Technologies (ROP) under review despite its better-than-expected Q2 2025 results and ongoing M&A strength – as detailed in the news section above.
ROP remains a high-quality operator in niche, mission-critical software and industrial markets – with strong pricing power, sticky customer relationships, and robust free cash flow. The company has delivered consistent EPS growth – beating estimates for the 17th straight quarter in Q2 – and raised its 2025 guidance once again. Roper has cemented its leadership in essential verticals – enabling steady organic growth, horizontal expansion, and premium pricing. The company also maintains a reliable dividend and a strong track record of accretive acquisitions – most recently highlighted by the Subsplash deal.
The key concerns that led us to place Roper under review have been largely addressed by the latest earnings. Margins have stabilized: adjusted EBITDA rose ~12% to $775 million – with margins holding firm even as CentralReach was integrated – demonstrating disciplined cost control and operating leverage. The integration is progressing smoothly, with its results already contributing to the quarter and management expectations of delivering 20%+ organic growth and margin expansion under Roper’s ownership. Cash flow remains strong: TTM free cash flow margin is ~31%, consistent with Q1, underscoring the company’s reliable cash-conversion model.
Following the report, Truist Financial raised the firm’s price target on ROP from $675 to $685, citing reliable growth trajectory, expanding recurring revenue, effective capital deployment, and confidence in ongoing acquisitions fueling future growth.
However, we remain cautious after the stock underperformed the S&P 500 over the past three months – sometimes lagging during periods of broader market strength. Some of this weakness appears technical: Roper trades at a premium multiple due to its defensible niche and sticky customer base, but since May, market sentiment has favored lower-multiple, cyclical names as macro fears eased. Additionally, ROP is not perceived as a high-growth AI beneficiary – so it has not fully participated in the recent AI-driven rally.
Given this context, we prefer to keep Roper under review a bit longer – to see whether its business and financial outperformance translate into improved sentiment and stronger stock performance.
1
❖ We continue to keep LPL Financial (LPLA) under review. Despite strong fundamentals – including continued advisor additions, rising advisory assets, and efficient capital deployment – the stock struggled from mid-May through June following a more than 35% rally from April lows, suggesting pronounced profit taking.
On July 7, Citi opened a “negative 30 day short-term view” on LPL ahead of its Q2 earnings report. Citi expects negative estimate revisions and forecasts Q2 earnings to be ~5% below the consensus estimate. The firm reiterated its “Hold” rating, reflecting caution about near-term performance despite the stock’s strong longer-term prospects. In addition, on July 9, TD Cowen downgraded LPL from “Buy” to “Hold,” citing a reduced earnings outlook and valuation concerns.
However, the consensus among top ranked Wall Street analysts remains positive, with a “Buy” rating and an average target price implying about 10% upside from current levels. Out of recent analyst actions, most have reaffirmed their positive ratings. Moreover, Barclays, Wells Fargo, J.P. Morgan, and Morgan Stanley raised their price targets over the past two weeks, reflecting increased confidence in LPL’s earnings outlook and growth prospects.
J.P. Morgan analysts cited favorable trends in the wealth management industry and the firm’s ability to execute strategic initiatives, expand its advisor base, and integrate technology. Meanwhile, Wells Fargo highlighted strong revenue growth in recent quarters, significantly outpacing peers, along with both higher ROE and ROA – indicating strong management, efficient capital use, and solid operational performance. LPL continues to deliver solid organic net new asset growth, demonstrating its ability to attract and retain clients, while stability in client cash balances supports its financial health and resilience.
Barclays maintained its “Buy” rating, lifting its price target from $450 to $460, implying a 23% upside from current levels. The firm noted that heading into Q2 earnings, it sees a robust trading environment likely to benefit LPL given its ability to capitalize on market opportunities. A more significant price-target hike arrived on July 15, when Morgan Stanley raised it from $450 to $490 – a Street-high target – implying an upside of nearly 25% from current levels.
LPL’s stock jumped on strong analyst support and was also boosted by optimism emanating from peer firms’ earnings results. However, given its previous underperformance, we will be monitoring LPLA at least until it releases its Q2 results on July 31.
1
1
Portfolio Earnings and Dividend Calendar
❖ The Q2 2025 earnings season is in full swing, with more than a third of Portfolio companies scheduled to report their quarterly results today and over the next week. These are: Microsoft (MSFT), Vertiv Holdings (VRT), Qualcomm (QCOM), Cognizant (CTSH), EMCOR Group (EME), Howmet Aerospace (HWM), LPL Financial (LPLA), MasTec (MTZ), Arista Networks (ANET), Leidos Holdings (LDOS), Emerson Electric Company (EMR), and Uber Technologies (UBER).
❖ The ex-dividend date for Morgan Stanley (MS) is July 31.
w
1
New Buy: ServiceNow (NOW)
ServiceNow stands at the center of enterprise digital transformation, providing a unified platform that connects people, processes, and data across industries. Its AI‑driven workflows power mission‑critical operations in IT, customer service, HR, finance, and more, helping organizations modernize systems, automate complex processes, and improve decision‑making. By integrating low‑code development, data intelligence, and agentic AI, ServiceNow enables businesses to build, deploy, and scale applications that enhance productivity and resilience. The company serves as both a strategic partner and execution platform, embedding itself in core operations to streamline work and accelerate outcomes. Trusted by a majority of Fortune 500 companies, it has become a foundational layer for enterprises navigating an increasingly complex digital landscape. Through its expanding capabilities in AI, CRM, and cross‑enterprise workflows, ServiceNow continues to redefine how businesses operate and deliver value in a fast‑changing world.
1
The Dawn of Now
Founded in 2004, ServiceNow pioneered cloud‑native IT service management and workflow automation, disrupting legacy on‑premises systems and positioning itself as a trusted workflow platform across enterprises. Its focus on intuitive interfaces and seamless automation attracted a global customer base that now includes most Fortune 500 companies.
Over the past five years, ServiceNow has accelerated its evolution into an AI‑native, data‑driven enterprise platform, embedding agentic AI and advanced automation at its core. Under CEO Bill McDermott, the company introduced flagship innovations like AI Agent Fabric, AI Control Tower and the Core Business Suite – enabling enterprise‑grade workflows built around real‑time data automation and AI‑powered decision‑making. Enhanced low‑code tools and data‑centric integrations have made it easier for customers to build applications rapidly while connecting processes across the organization.
ServiceNow has paired M&A with partnerships to broaden its ecosystem. The 2025 acquisition of data.world enhanced its data catalog and governance capabilities, strengthening the platform’s AI intelligence and enterprise integration. In March 2025, ServiceNow also announced its largest‑ever acquisition – Moveworks – in a US $2.85 billion cash‑and‑stock deal. Moveworks brings conversational AI and enterprise search capabilities that will further expand ServiceNow’s agentic AI footprint across employee support and customer‑facing workflows.
Alongside acquisitions, NOW has forged high‑profile alliances to extend its platform’s reach. Partnerships with NVIDIA, AWS and Cisco have reinforced its presence in hyperscale cloud, high‑performance AI and secure networking, while a collaboration with HR technology provider UKG has extended its reach into workforce and payroll automation. A five‑year strategic alliance with Visa is driving an AI‑enhanced disputes management solution for issuers, while a deeper partnership with Google Cloud integrates ServiceNow workflows with Google’s AI infrastructure and marketplace. These collaborations, combined with existing ties to other major hyperscalers and industry leaders, position ServiceNow as a cloud‑native, AI‑centric platform embedded in mission‑critical enterprise operations.
Through platform‑level innovation, targeted acquisitions and a growing network of partnerships, ServiceNow has transformed into a full‑stack operating system for the enterprise – enabling organizations to automate complex workflows, harness real‑time data and scale AI‑driven decision‑making across industries.
1
The Workflow Command
ServiceNow has evolved from a workflow automation platform into what it now calls an agentic operating system for enterprises – a cloud‑native AI and data platform that underpins critical workflows across IT, HR, customer service, finance, security and other enterprise functions. Its business is built almost entirely on subscriptions – about 97–98% of revenue – providing high visibility, stable renewals and predictable cash flow. Professional services contribute only a small share, underscoring the scalability of its model and the durability of its revenue base.
The company’s total addressable market continues to expand as enterprises shift to AI‑driven, cloud‑based operations. Beyond generative AI, NOW’s agentic AI framework combines autonomous agents, orchestration layers and real‑time data integration to redefine enterprise automation. Innovations such as AI Agent Orchestration, Workflow Data Fabric and AI Control Tower enable cross‑departmental collaboration and centralized governance, while accelerating issue resolution and decision‑making. The March 2025 Yokohama release further advanced this strategy, adding more than 8,000 pre‑configured AI agents and a no‑code platform for custom agent creation. Adoption has been rapid – AI Control Tower exceeded its full‑year net new ACV expectations within just two months of launch – reflecting strong enterprise appetite for unified, AI‑driven workflows.
To support this shift, NOW has pursued strategic acquisitions and alliances – notably data.world – and the planned acquisition of Moveworks. A $1.2 billion, five‑year partnership with Google Cloud integrates NOW’s platform with Vertex AI, BigQuery and Google Workspace, expanding real‑time analytics and agent orchestration capabilities. Alliances with AWS, NVIDIA and Cisco reinforce NOW’s presence in hyperscale cloud, high‑performance AI and secure networking, while the partnership with Visa broadens its reach in financial services.
The company’s customer base spans nearly every major industry, with North America generating about two‑thirds of revenue, Europe and the Middle East roughly a quarter, and Asia‑Pacific the remainder. Growth has been broad‑based, with Asia‑Pacific delivering the fastest YoY expansion. Large deals are increasingly common, highlighting NOW’s growing role in large‑scale digital transformation programs.
While risks remain – including the high upfront costs of AI initiatives, currency fluctuations, and regulatory scrutiny of major acquisitions – ServiceNow’s end-to-end AI orchestration creates a durable moat. Its subscription‑based model, expanding product stack and accelerating adoption of agentic AI workflows leave it well positioned to capture an increasing share of enterprise IT spending as AI becomes integral to business operations.
1
Agents of Growth
ServiceNow’s focus on agentic AI – where autonomous agents collaborate to resolve tasks – has already yielded measurable results, with customers increasingly relying on its systems’ ability to deliver tangible operational efficiency, a critical factor for enterprises seeking to optimize costs and productivity. The Q2 2025 results highlight NOW’s ability to scale profitably, a rare trait in the AI-software sector.
The company delivered another strong quarter, with both subscription and total revenue up 22.5% year-over-year and ahead of analyst expectations. Adjusted EPS came in at $4.09, comfortably above consensus of roughly $3.57. Operating margin expanded to 29.5%, ~250 basis points higher than a year ago, despite heavier investment in AI and ecosystem growth, while free cash flow margin improved to 16.5%, up 300 basis points year-on-year.
Large‑enterprise momentum remained evident, with 89 transactions above $1 million in ACV and 528 customers exceeding $5 million in ACV, an increase of 19% YoY. During the quarter, NOW landed 11 deals over $1 million in net new ACV, including two over $5 million, with average new logo ACV more than doubling YoY. The company’s current remaining performance obligations (cRPO) rose 24.5% YoY to $10.92 billion, while total remaining performance obligations (RPO) increased 29% to $23.9 billion – reflecting both strong near‑term revenue visibility and robust multi‑year contract commitments.
Looking forward, Q3 growth is expected to face modest pressure as a large cohort of customer contracts comes up for renewal in Q4. This effect is most pronounced in the U.S. federal market, where agencies are contending with tighter budgets and shifting mission priorities that can temporarily delay contract renewals. However, management expects these headwinds to subside once the renewals close, with the associated revenue flowing into the following quarter. While integration of the Moveworks acquisition and continued partner‑related investment could create short‑term margin pressure, NOW maintains free cash flow margins above 30% and a growing deal pipeline.
Despite the rising competition in AI market, ServiceNow’s differentiator lies in its end-to-end orchestration capabilities, which give it a tangible moat. Although some near-term growth volatility is expected, management lifted its full‑year subscription revenue guidance to $12.78-12.80 billion, up from $12.64-12.68 billion, implying roughly 20% YoY growth. For Q3, subscription revenue is projected at $3.26-3.27 billion with cRPO growth of about 18.5%, both slightly ahead of consensus. The raised outlook reflects management’s confidence in durable demand supported by NOW’s differentiated platform and accelerating adoption of its AI‑driven capabilities.
Analysts at Cantor Fitzgerald, Oppenheimer, Raymond James, Piper Sandler, and other leading Wall Street firms highlighted ServiceNow as one of the best‑positioned companies to benefit from enterprise AI adoption. The Street consensus calls for double‑digit revenue, EPS, and FCF growth through the remainder of 2025 and into 2026.
Cantor noted that large‑deal ACV growth, while down from 40% in Q1 to about 30% in Q2, remains impressive given the five‑quarter average of 41%, with four contracts above $100 million ACV signed in Q1. Oppenheimer pointed to strong sales execution, robust margins and better‑than‑expected contract revenue as drivers of potential upside to 2026 estimates. Piper Sandler added that AI traction and resilient demand supported Q2 performance, with federal sector results coming in line with prior expectations. Meanwhile, Raymond James noted that “the beat-and-raise keeps ServiceNow in an elite company of 20%+ growth at rare scale,” adding that “the unique blend of growth, scale, and cash generation justifies the premium multiple, especially considering the incremental agentic catalyst should compound in coming years.”
1
League of Flows
ServiceNow’s combination of workflow orchestration, IT service management, and rapidly expanding AI‑driven automation capabilities places it in a unique position within enterprise software – with no perfect one‑to‑one comps. However, Workday, Salesforce, Atlassian, and Snowflake – large‑cap, cloud‑native, subscription‑based businesses with high gross margins, strong enterprise customer bases, and defensible moats built around platform ecosystems – provide a meaningful context for evaluating NOW’s valuation and stock performance.
ServiceNow’s stock has largely tracked trends in software industry stocks over the past year, rising by about 21% – ahead of the S&P 500 and roughly matching the average for the chosen peer group. However, performance has been uneven – with strong positive reactions to the two most recent earnings reports followed by bouts of profit‑taking. After the AI narrative lifted chip and infrastructure stocks, investors were spooked by several false positives in the software space, with uncertainty around the pace of AI monetization still weighing on sentiment. However, as the earnings results show, NOW is firmly on the AI monetization path – leveraging the technology to drive both revenue growth and margin expansion.
Following the Q2 results, several leading Wall Street analysts raised their price targets on NOW, with the average PT now implying potential upside of nearly 19%. Analysts increasingly believe that ServiceNow’s existing strengths – growth, scale, and cash generation – will be compounded by the incremental agentic AI catalyst, justifying its premium multiples compared with the broader technology sector. For the chosen comps, NOW’s non‑GAAP forward and TTM P/E, EV/EBITDA, and EV/Sales – as well as forward PEG and TTM price/cash flow – sit roughly in the middle of peer‑group multiples, making the company’s valuations appear reasonable. Considering ServiceNow’s growth rates – with revenue and EBITDA expanding faster than most peers and adjusted EPS rising at the fastest rate over the past year – its multiples appear justified.
ServiceNow’s capital return strategy further strengthens its appeal. In May 2023, the board authorized the company’s first‑ever stock repurchase plan of up to $1.5 billion, which expanded to $4.5 billion in early 2025. NOW bought $1.23 billion of shares during 2024, adding $298 million in Q1 and $361 million in Q2 2025, with approximately $2.6 billion still available for future repurchases under the authorization. NOW views buybacks as a strategic tool to manage dilution while reinforcing financial strength – free cash flow remains robust, debt levels are minimal, and leverage is low. Analysts expect buyback activity to accelerate further as AI investments mature and cash generation continues to grow.
This combination of strong growth, justified valuation, and disciplined capital allocation gives NOW a compelling risk‑reward profile – positioning it as one of the few large‑cap software companies able to compound both scale and profitability while riding the next wave of AI‑driven enterprise transformation.
1
Investing Takeaway
ServiceNow is a pivotal force in enterprise digital transformation, providing the cloud‑native platform that powers mission‑critical workflows across industries. With its agentic AI framework and unified data fabric, NOW enables organizations to automate processes, orchestrate decisions, and integrate disparate systems at scale. Its role has expanded well beyond IT service management, embedding into HR, finance, customer operations, and security as enterprises accelerate AI‑driven adoption. A subscription‑based model ensures high revenue visibility and customer retention, while strategic acquisitions and partnerships continue to enhance its capabilities and market reach. For investors seeking exposure to the convergence of AI, cloud, and workflow automation, ServiceNow offers a rare combination of scale, growth, and profitability, positioned to capture increasing share of enterprise technology spending.
1
1
Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Markets have ebbed and flowed, and also one of our holdings – IBM – has fallen below the threshold, the Club has gained another Winner, VRT. As a result, our exclusive Club still holds 12 stocks: GE, AVGO, ANET, EME, ORCL, HWM, TSM, APH, IBKR, PH, CRWD, and VRT.
The first contender for the Club’s entry is now IBM with 24.81% gain since purchase. Will it return to the ranks, or will another stock outrun it to the finish line?
1
1
|
