This month's list of new buys by the best mutual funds was driven once again by artificial intelligence trends. Microsoft and Alphabet led this screen, while Nvidia went AWOL. Although enterprise software peer Palantir Technologies also made this screen, top fund managers shoveled nine times more money into ServiceNow. And now, as Palantir stock builds on a recent breakout, ServiceNow stock looks to shake off pressure in the Nasdaq and launch one of its own — if the market cooperates.
ServiceNow has also landed on the IBD Breakout Stocks Index alongside fellow AI leaders Palantir and Google stock. Hailing from the enterprise software group, Datadog, Parsons and Manhattan Associates also earned a spot on this index, which gets updated weekly.
As the Nasdaq and bellwether AI stocks like Nvidia, Microsoft and Alphabet retreated Wednesday, ServiceNow also fell. But NOW stock is clinging to support at its 50-day moving average as it continues to work on a handle. Palantir is bucking market pressure as it remains in buy range.
Top Funds Like Palantir But Love ServiceNow
In the July report, the best mutual funds poured an estimated $10.9 billion into Microsoft and $9.7 billion into Alphabet.
ServiceNow came up just short of the $1 billion mark as top funds invested $997 million into the stock. But that dwarfed — by a factor of nine — the $105 million bet they placed on Palantir.
Expanded AI Partnership With Microsoft
In May, ServiceNow and Microsoft expanded their strategic alliance on AI assistants. The goal is to leverage their combined generative-AI capabilities.
The Microsoft-ServiceNow collaboration aims to integrate both firms' generative AI assistants into one seamless experience. The companies say that melding ServiceNow's Now Assist platform with Microsoft Copilot will make it easier to create value for enterprise workers. The partnership also looks to help employees unlock new avenues to improve productivity.
Also in May, ServiceNow unveiled AI-powered capabilities to help improve employee experiences, supercharge talent development and optimize in-person work.
See Who Joins ServcieNow, Palantir On The IBD Breakout Stocks Index
Earnings On Tap For ServiceNow, AI Stocks
ServiceNow is just one of several top AI stocks set to report earnings this month.
Over the last six quarters, ServiceNow has delivered strong and steady growth.
Revenue gains have ranged from 20% to 26% during that time, including a 24% gain to $2.6 billion last quarter. On the earnings front, ServiceNow has posted increases ranging from 36% to 56% over the same period. On April 24, the company generated a 44% year-0ver-year rise in earnings to $3.41 per share.
When ServiceNow reports on July 24, Wall Street analysts expect 19% EPS growth to $2.82. For the full year, they forecast a 25% earnings gain to $13.47 per share, followed by a 20% gain to $16.20 per share in 2025.
Microsoft and Alphabet both report on July 23. Parsons — featured in the IBD Stock Analysis on June 28 — reports on July 31. Palantir is set to unveil its latest numbers on Aug. 5.
ServiceNow Stock Rides Wavy Action Toward New Breakout
Since notching a record high in February, ServiceNow stock has had to weather multiple waves of support and resistance. The stock's relative strength line has struggled as its new base — a third-stage consolidation pattern — has formed.
ServiceNow stock has just added a handle, providing an 806.52 buy point. A breakout from that entry would mark an all-time high for the stock.
While ServiceNow stock has seen its share of turbulence while forming its current base, signs of improving technical strength have emerged.
The 50-day moving average has been pointing higher after trending down since April. Also note how the 21-day exponential moving average has crossed back above the longer-term 50-day line. Plus, ServiceNow currently sports a strong 1.5 up/down volume ratio. Anything above 1.0 points to net demand.
But Wednesday's downturn in the market and ServiceNow's declining relative strength line are reasons to remain cautious.
Checking in on other AI stocks to watch, ServiceNow partner Microsoft has slipped below its 21-day line but remains above its 50-day benchmark. Palantir trades near the top of its latest buy range. Parsons continues to craft a new cup with handle showing an 83.17 entry, but slipped below its 50-day line on Wednesday.
Is Artificial Intelligence Fueling A 'Nuclear Renaissance'?
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Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
