According to CNBC, Bernstein analyst Peter Weed reiterated an outperform rating on ServiceNow this week, calling it the “cheapest” large-cap software stock. This comes after shares slumped 8% this week alone, triggered by a Bloomberg report that ServiceNow is in talks to acquire cybersecurity startup Armis for a potential $7 billion. Year-to-date, the stock is down a staggering 25%. Weed set a price target of $1,093, which is approximately 40% above ServiceNow’s Tuesday close of $781.12. He defended the potential Armis deal and noted that management has recently emphasized accelerating demand, with no organic growth guide downs expected like in mid-2022.
The “Cheapest Stock” Narrative
Here’s the thing: Bernstein calling ServiceNow “the cheapest” is a massive shift in narrative. This is a company Weed once labeled “the next Microsoft.” Now, he’s pointing out that its price-to-future-cash-flow ratio, when stacked against its growth rate, is below even the most bearish AI-impacted peers like Adobe. It’s even trading below Salesforce, which is often the go-to comparison for ServiceNow skeptics. That’s a wild place for a premium franchise to find itself. Basically, the market’s panic over the Armis deal has created a valuation disconnect that analysts like Weed think is way overdone.
Defending The Deal Strategy
So why is the market so spooked by acquisitions? Investors hate big, expensive deals that smell of desperation for growth. But Weed is pushing back hard on that notion. He argues that recent buys, like Moveworks earlier this year and the potential Armis deal, aren’t “growth-at-all-costs” moves. His key point? These companies are already tightly integrated into ServiceNow’s technical architecture. They “require limited technical change beyond UI and branding” and have a “clear line of sight” to be sold at scale to ServiceNow’s existing customer base. In other words, they’re not random moonshots; they’re strategic plugins meant to drive revenue quickly from a captive audience. The market just doesn’t believe it yet.
The Real Risk Here
Look, the core question isn’t really about integration. It’s about focus and capital allocation. ServiceNow built a massive, profitable empire by dominating IT Service Management (ITSM). Now, it’s spending billions to move deeper into AI (Moveworks) and cybersecurity (Armis). That’s a competitive jungle. Is ServiceNow spreading itself too thin? Can it really out-execute specialized players in these new fields? The Bernstein note suggests yes, emphasizing management’s confidence in demand. But for a stock trading at a discount, the burden of proof is now squarely on ServiceNow to show these deals aren’t just expensive distractions—that they can actually move the needle without diluting that prized profitability. If they can’t, “cheapest” might just become “value trap.”
