Investors seeking long-term growth may find promising opportunities in two standout companies: ServiceNow and Arista Networks. Both firms exhibit strong business models, consistent operational execution, and the potential for significant value creation over time.
ServiceNow: Leading Enterprise Software Growth
Valued at a market capitalization of $136 billion, ServiceNow specializes in enterprise software solutions designed to streamline internal operations for large organizations. The company’s platform automates manual processes, replacing traditional workflows reliant on emails, spreadsheets, and disconnected systems. With the integration of artificial intelligence, ServiceNow has established itself as a pivotal player in enterprise AI and workflow transformation. This positioning has earned the stock a consensus rating of “Strong Buy” from Wall Street.
In the third quarter of the fiscal year, ServiceNow reported subscription revenues of $3.3 billion, reflecting a growth of 20% year-over-year (YOY). The company’s remaining performance obligations (RPO) rose to approximately $24.3 billion, a 23% increase YOY, with current RPO also increasing by 21% to $11.3 billion. ServiceNow’s profitability outperformed expectations, with adjusted net income reaching $4.82 per share.
Deal activity remained robust, with ServiceNow closing 103 deals valued over $1 million in net new annual contract value (ACV), including three contracts exceeding $20 million. The number of customers generating more than $50 million in ACV also grew by over 20% YOY. Management highlighted that core workflows across various sectors, including IT service management and customer relationship management, have driven broad demand.
Looking forward, management aims for AI solutions to achieve $500 million in ACV by 2025, with a target of $1 billion by 2026. The company’s recent performance across industries showcased impressive growth, particularly in transportation and logistics, which saw over 90% YOY growth in net new ACV.
ServiceNow concluded the quarter with a robust balance sheet, holding $9.7 billion in cash and investments. The firm repurchased approximately 644,000 shares during Q3, nearly 70% more than the previous quarter, primarily to manage dilution. Additionally, the board approved a five-for-one stock split to enhance share accessibility for employees.
ServiceNow plans to report Q4 results on January 28, 2025, anticipating subscription sales between $3.42 billion and $3.43 billion, alongside an operating margin of 30%. Analysts expect a 25% increase in earnings for 2025, followed by a 17% rise in 2026. Despite a 40% decline in stock value over the past year, the mean target price stands at $219.69, indicating a potential upside of 72%.
Arista Networks: Powering AI Infrastructure
Meanwhile, Arista Networks, valued at $164.5 billion, designs high-speed computer networks essential for large firms, cloud providers, and AI data centers. In the third quarter, Arista recorded revenues of $2.31 billion, a remarkable 28% increase YOY. Demand surged from cloud, AI, and enterprise customers, with software and services contributing 18.7% of total sales.
The company’s profitability improved, achieving an adjusted gross margin of 65.2%, attributed to favorable product mix and inventory management. Diluted earnings per share increased by 25% to $0.75, while deferred revenue grew to $4.7 billion, signifying strong client demand and ongoing AI-related deployments.
Management emphasized that AI-driven networking needs are unprecedented, with clients managing vast data sets across complex architectures. Arista’s EtherLink portfolio supports this demand by providing centralized control over automation, security, and traffic management, ensuring efficient data flow even at scale.
At the end of the quarter, Arista held $10.1 billion in cash and investments, along with $1.4 billion remaining under its share repurchase program. Management reaffirmed a target of at least $1.5 billion in AI-related revenue by 2025, with total revenue goals reaching $10.65 billion by 2026.
Analysts predict strong earnings growth of 27% in 2025 and nearly 17% in 2026. While ANET stock is currently trading at a premium of approximately 42 times forward earnings, it offers investors exposure to the essential infrastructure behind the ongoing AI revolution.
Over the past year, ANET stock has gained 10%, slightly underperforming the broader market. The average price target of $167.22 suggests a potential increase of 29% from current levels, with the highest estimate reaching $185, indicating potential upside of about 42%.
Both ServiceNow and Arista Networks present compelling opportunities for long-term investors who are ready to hold through market fluctuations. With their strong business foundations and promising growth trajectories, these stocks could be key components in a well-diversified investment portfolio.
