Morgan Stanley’s Best Stock Picks: 15 Stocks To Own For 2025

13. ServiceNow, Inc. (NYSE:NOW)

Number of Hedge Fund Holders In Q2 2024: 97

Share Price Target Upside: 2%

Share Price Target: $900

ServiceNow, Inc. (NYSE:NOW) is a software company that provides automation solutions. This means that growth and cost control are the two pillars on which its hypothesis rests. Since ServiceNow, Inc. (NYSE:NOW) is a profitable firm, with $1.1 billion in trailing twelve month net income, the firm also has to ensure that it retains its customers through new initiatives. Its revenue and future cash flows are measured through committed remaining performance obligations, which measure the money that the firm is guaranteed to receive from existing contracts in the future. This figure grew by 10% annually to $26.5 billion during ServiceNow, Inc. (NYSE:NOW)’s first quarter of fiscal year 2025, and the firm also benefited from a 40% increase in its customers that have an annual recurring revenue (ARR) greater than $20 million. ARR is a key metric for software companies as it measures their product subscriptions and ensures revenue growth in the future through existing deals. However, ServiceNow, Inc. (NYSE:NOW) can face headwinds in case of an economic slowdown, a recession, or a delayed rate cut cycle.

Lakehouse Capital mentioned ServiceNow, Inc. (NYSE:NOW) in its Q1 2024 investor letter. Here is what the fund said:

“US-based software company, ServiceNow, provided another strong result, continuing its long and consistent track record of 20%-plus revenue growth combined with healthy profitability. Subscription revenues grew 25% year-on-year to $2.5 billion and free cash flow grew 47% year-on-year to $1.2 billion. The company’s core operating metrics were also impressive with remaining performance obligations growing 26% year-on-year to $17.7 billion (i.e. roughly 2x 2023 revenue) and renewal rates holding steady at 98%. Performance was evenly spread across segments, products, and geographies, with notable strength in the US federal government. The company now boasts 1,933 customers generating in excess of $1 million in Annual Contract Value (ACV), which is pleasing to see as it implies multiple solutions are involved and that the company’s platform model is increasingly resonating with customers. In our view, ServiceNow is one the highest quality software businesses globally as the combination of consistent growth at scale, robust free cash flow generation and a large addressable market make it a compelling opportunity.”