ServiceNow (NOW) is One Company That’s Benefiting the Most From Generative AI

Stock (Symbol)

ServiceNow (NOW)

Stock Price

$625

Sector

Data is as of

Expected to Report

Company Description

ServiceNow, Inc. is a digital workflow company.

The Company helps global enterprises across industries, universities and governments to digitize their workflows.

Its technology platform, Now Platform, enables it to connect systems, silos, departments and processes with digital workflows. It categorizes the workflows it provides into four primary areas, such as information technology (IT), employee, customer, and creator.

Its IT workflows give IT departments the ability to plan, build, operate, and service across the entire IT lifecycle.

Its employee workflows help customers simplify how their employees get the services they need, creating a familiar, consumer-like way to get work done from wherever an employee may be at home, in the workplace or in the field.

Its customer workflows help organizations reimagine the customer experience and increase customer loyalty.

Its creator workflows enable its customers to create, test, and deploy their own applications on the Now Platform. Source: Refinitiv

Sharek’s Take

Here are some financial highlights from last qtr:

• Profit increased 49%, year-over-year.
• Revenue increased 25%, y.o.y (less than 23% adjusted for constant currency).
• Acquired 83 new customers last quarter who are spending greater than $1 million per year.
• 1,789 customers with over $1 million annual contract value, up 17% from a year ago.
• 49 customers paying over $20 million, up by 58% from a year ago.

ServiceNow builds applications that help automate processes and create efficient workflows, to enable work to flow naturally across different departments of a business. Its product portfolio is on a single cloud platform called the Now Platform. The Now Platform integrates easily with other enterprise systems including Microsoft Teams and Azure, Amazon Web Services, Splunk, SAP, Oracle, YouTube, Google Cloud, and Crowdstrike among others. Non-tech staff can drag-and-drop interfaces into place on pages and build the platform without the need for a developer. NOW’s specialty is working with large organizations, and the company has a niche in government organizations. ServiceNow has FedRamp High authorization. In late 2021, NOW landed the Internal Revenue Service (IRS) as a new client. NOW is working with the IRS to consolidate 12 complex systems into a single platform. And the company recently won a $250 million five-year contract with the US Department of Health & Human Services. Earlier in 2023, ServiceNow teamed up with NVIDIA and Accenture to launch AI Lighthouse, which unites NOW’s automation platform, NVIDIA’s supercomputing, and Accenture’s consulting services to allow users to architect custom generative AI.

NOW’s product portfolio is currently focused on:

• Information Technology (IT) Workflows — Its flagship suite records IT incidents, solves problems, and automates routine tasks and requests. There is also a product suite to manage IT projects, one for security operations, and a single dashboard for planning, developing, testing, and deploying.
• Employee Workflows — products for every stage of an employee’s engagement with an employer. It includes HR services and finance operations
• Customer Workflows — for identifying a customer issue and its underlying cause. It includes customer service management for cases and requests, and a field management product for agents out on location, including scheduling and dispatch.
• Creator Workflows — allows clients to easily create, test, and deploy their own applications on the Now Platform

NOW is one of the best companies in the world. And its a prime benificiary of the power of generative AI as that will assist the company in improving effeciency within organizations by accomplishing tasks workers would normally do (like customer service). When I look at the financials, I see revenue has increased on a qtrly basis for years. The stock has an Est. LTG of 27% per year and I feel this is a 30% grower. This quarter the stock has a rich P/E of 49, but I think it’s deserved. Years ago, Salesforce was a 35% grower and it was earning P/Es in the 70s and 80s. NOW is a core holding in the Growth Portfolio and Aggressive Growth Portfolio.

One Year Chart

Quarterly profit growth has been good-to-great for the past four quarters. Quarterly Estimates for the next qtrs are still solid at more than 20% growth expected.

NOW has an Est. LTG of 27% per year, up from 26% 2QtrsAgo. That’s a solid growth rate for a large company such as this.

Earnings Table

Management highlighted the role of US Federal Government to revenue last qtr. NOW had its best Federal Government qtr in the company’s history with 19 deals over $1 million in annual contract value and 3 deals with over $10 million in value. The top deal was the US Air Force, the 3rd largest deal in government history. Annual contract value for US Federal deals was up 75% year-over-year. Other industries such as transportation and logistics, education, and manufacturing also displayed robust growth. 18 of the company’s top 20 deals contained 8 products or more. 

Annual Profit Estimates improved this qtr.

Qtrly Profit Estimates are for 22%, 22%, 20%, and 16% growth the next 4 qtrs. Analysts predict ServiceNow’s revenue will grow 24% next qtr.

Fair Value

The stock has a 12% upside to 2024’s Fair Value of $700. But keep in mind 2024 profit estimates have been climbing.

Bottom Line

ServiceNow (NOW) is one of the world’s finest software stocks.

ServiceNow is building AI capabilities into its IT and customer service software will make the platform even more valuable by saving time and improving productivity for its customers.

NOW moves up from 22nd to 17th in the Growth Portfolio Power Rankings. I wish I could putit higher, but the upside isn’t that great.

The stock moves stays at12th in the Aggressive Growth Portfolio Power Rankings.

Power Rankings

17 of 30

Aggressive Growth Portfolio

12 of 17

Conservative Stock Portfolio

N/A