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According to a recent survey, morgan stanley lists artificial intelligence (AI) as the IT product category likely to see the most spending growth in 2024. Despite their enthusiasm, businesses are only just beginning to reap the benefits of the most transformative technology in years.
In fact, billionaire hedge fund manager Dan Loeb recently likened AI to the industrial revolution, writing in a note to clients:
We have been watching the evolution of AI and believe the technology has matured to the point where it is driving the kind of revolutionary technology platform change we see approximately every 10 years. Personal computers in the 1980s, the Internet in the 1990s, mobile in the 2000s, and the cloud in the 2010s.
This presents investors with a huge opportunity, and the smartest way to profit is by owning a basket of AI stocks.The reason is as follows ServiceNow (now -1.35%) It belongs in such a basket.
ServiceNow is a leader in several IT software markets
ServiceNow specializes in digital workflow management. Its platform addresses his four main use cases: technology workflows such as IT services, employee workflows such as human resources, customer workflows such as customer service, and creator workflows such as application development and workflow automation. Its platform integrates products from vendors such as: microsoft and sales force We help businesses integrate and digitize workflows across disparate systems.
According to the consulting firm, ServiceNow is the market leader in artificial intelligence (AI) for IT service management, IT operations management, and IT operations software. gartner. According to , the company is also a leader in low-code application development, digital process automation, and risk management platforms. forrester research. These accolades tell investors that the company is doing the right thing and tell potential customers that ServiceNow is worth considering.
With this in mind, ServiceNow reported solid financial results in the fourth quarter. Revenue increased 26% to $2.4 billion, the fourth consecutive quarter of acceleration, and non-GAAP net income increased 36% to $3.11 per diluted share. The company also indicated high customer satisfaction, with a renewal rate of 99% in the fourth quarter, up from 98% last year.
The chart below shows quarterly revenue growth over the past two years.
ServiceNow’s quarterly revenue growth over the past two years.
ServiceNow was an early adopter of generative AI
ServiceNow has been building AI into its platform for years, including virtual agent technology, predictive insights, intelligent search, and automation of routine tasks. But the company quickly capitalized on the demand for generative AI. In fact, ServiceNow was one of the first software vendors to make generative AI available to customers when it introduced Now Assist last September. This rapid product development is already a tailwind, as evidenced by accelerated revenue growth and strong customer retention.
Now Assist is a digital copilot that automates interactions and summarizes information for IT services, field services, customer service, and HR teams. It can also translate natural language into computer code to help software developers build products faster. CEO Bill McDermott said Now Assist has seen the highest customer requests for pre-release products in the company’s history.
Additionally, ServiceNow recently expanded its partnerships with: Nvidia Deploy specialized generative AI solutions for telecommunications companies, an industry with high demand for automation. Management says the new tools will help companies provide better customer care and realize cost savings through increased productivity.
Suffice it to say, ServiceNow is committed to AI and believes it stands to benefit as companies ramp up their investments in the AI space. Mr. McDermott offered the following insight on his latest earnings call:
In fact, we are in a new era of AI-powered business transformation. This creates a huge opportunity for the enterprise software industry. And ServiceNow is in a great position to not only lead this movement, but define it.
ServiceNow stock is trading at a reasonable valuation
ServiceNow has a largely untapped $220 billion addressable market and sits at the intersection of two major trends: workflow digitization and artificial intelligence. The company has a strong presence in several software markets, and its incredible innovation capabilities are creating new monetization opportunities. Since his 2020, ServiceNow has nearly doubled the number of major products on its platform.
This positions the company well for future growth. In fact, ServiceNow ranked him No. 19 on his 2023 list of Fortune Future 50, an annual ranking that ranks the world’s largest companies based on long-term growth prospects. And Wall Street analysts expect annual sales to rise 20% over the next five years.
With that in mind, the current valuation of 17.8 times sales seems reasonable, albeit a slight premium to the average sales of 16.9 times over the past three years. Investors should feel comfortable buying a small position in this stock today, especially as part of his basket of AI stocks.
Trevor Jennewine holds a position at Nvidia. The Motley Fool has positions in and recommends Microsoft, Nvidia, Salesforce, and ServiceNow. The Motley Fool endorses his Gartner and recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
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