BTIG Research: ServiceNow(NOW.US) AI narrative is undergoing a "substantial" positive transformation, Q2 may be a key turning point.

Investment firm BTIG pointed out that a channel survey conducted before the release of ServiceNow's (NOW.US) second quarter performance indicates a "substantial" positive shift in the market narrative surrounding its positioning in the artificial intelligence (AI) space. Analyst Allan Verkhovski wrote in a report to clients, "While the transition to a three-tier pricing model by ServiceNow is not a forced migration, our survey suggests that the company is benefiting significantly in two ways: early renewal by existing customers, and widespread acceptance of double-digit price increases when upgrading to new tier packages that include AI capabilities." Verkhovski gave ServiceNow a "buy" rating with a target price of $150. He also stated that the survey indicates that the company, led by Bill McDermott, is "shifting more focus" to the high-end market rather than the mid-low end market. Verkhovski added, "Previously, conflicts in the Middle East had affected its on-premise deals, resulting in slightly lower-than-expected subscription revenue for ServiceNow in the first quarter. However, we believe that under the current more cautious performance guidance, the company has the ability to outperform expectations across the board. In addition to the growth in orders due to the new pricing model, the US federal government business is strong in verticals, and Moveworks has been mentioned multiple times, demonstrating very strong demand." The survey also mentioned other details, including the company's progress in implementing a workforce reduction plan, which had already been included in the company's overall planning earlier in the year at an investor day. Verkhovski concluded, "While the second half of the year will be a key period for gaining a more comprehensive understanding of customer feedback on the new pricing packages and the actual effects of price increases, we are optimistic that the second quarter will be a good start to this transition."