The technology landscape has changed dramatically in the last few decades. Consider the emergence of the Internet in the 1990s, the proliferation of mobile devices in the 2000s, and the migration to cloud computing in the 2010s. These innovations have changed the world and created lucrative investment opportunities in the process.
A number of respected business leaders and analysts see artificial intelligence (AI) as the game-changing technology of the next decade. JPMorgan Chase CEO Jamie Dimon recently suggested that AI could be as transformative as the printing press, the steam engine and electricity, not to mention computing and the Internet.
In this sense, service now (NYSE:NOW) And I will teach (NASDAQ:DCBO) are characterized by stocks that are worth buying. Here’s why.
1. ServiceNow
ServiceNow supports companies in the cross-departmental digitization, optimization and automation of work processes. His core competency is technology workflows such as IT service and operations. However, the platform also includes tools for customer operations, such as customer service; Employee workflows, e.g. B. Human Resources (HR); and creator workflows such as application development and process automation.
The company has been building artificial intelligence (AI) capabilities into its platform for years and quickly added generative AI capabilities after ChatGPT popularized the technology. For example, IT and HR staff can access incident summaries to help them address issues more efficiently, and developers can leverage text-to-code capabilities to build products faster. ServiceNow is well positioned to monetize these features for two reasons.
First, the company is already a leader in the AI software for IT operations market, which suggests that it has the necessary technical expertise. Secondly, the company is also a leader in the IT services and operations management markets and has a strong presence in digital process automation and customer service solutions.
In other words, ServiceNow has built brand authority with a broad customer base to which it can sell AI products. To that end, the company believes it is “uniquely positioned to bring the full potential of generative AI to the company,” according to its most recent Form 10-K.
ServiceNow reported first-quarter results that narrowly beat estimates. Revenue rose 24% to $2.6 billion, a slight acceleration from last year’s 22% growth, and non-GAAP net income rose 44% to $3.41 per diluted share. However, the company forecast subscription revenue growth of around 22% for the second quarter. That was slightly less than Wall Street expected, sending the stock down about 5% following the report.
Investors should view this decline as a buying opportunity. ServiceNow has only captured 10% of its $220 billion addressable market, so there is still plenty of room for growth in core applications. Additionally, spending on generative AI software is expected to grow 59% annually through 2032. CEO Bill McDermott believes this will expand the addressable market by $1 trillion.
Wall Street expects ServiceNow to grow revenue by 20% annually over the next five years. Therefore, the current valuation of 16.9 times sales seems reasonable. In fact, among the 42 analysts who follow ServiceNow, the stock has a median price target of $850 per share, a 20% upside from the current price of $710 per share.
2. I will teach
Docebo specializes in corporate learning. Its platform allows companies to create, manage, deliver and measure the impact of training programs. While older learning management systems (LMS) focus on formal learning, Docebo combines formal, social and experiential learning and its platform covers both internal (employees) and external (customers) use cases.
The company is capturing market share from older providers in internal LMS use cases and is the market leader in external LMS use cases Morgan Stanley. Innovative products such as Docebo Flow and Docebo Shape have contributed significantly to this success. Docebo Flow is an experiential learning application that feeds training content into other software. Docebo Shape is a generative AI application that automates the creation of learning content.
Docebo reported encouraging fourth-quarter results. Management highlighted a new deal with one of the top four banks and an expanded deal with one of the top five tech companies, showing Docebo is winning big customers. Additionally, customer numbers increased 11% during the quarter, and the average existing customer spent 4% more. In return, revenue rose 27% to $46 million and net income jumped 100% to $0.10 per diluted share.
Morgan Stanley sees Docebo as one of the software companies best suited to monetizing generative AI based on its data and product roadmap. More specifically, Docebo’s strong market presence means that the company has unique data that can inform product development. Additionally, the company plans to expand Docebo Shape this year to include a natural language user interface and virtual role-playing technology to enable greater automation of content creation and more immediate feedback on training materials.
With this in mind, Wall Street expects Docebo to grow revenue by 25% annually over the next five years. I think the consensus estimate leaves room for upside, but even if Wall Street is right, the current valuation looks cheap at 8.4 times sales. Among the 12 analysts covering Docebo, the stock’s average price target is $65 per share, an increase of 44% from the current price of $45 per share.
Should you invest $1,000 in ServiceNow now?
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Docebo, JPMorgan Chase, and ServiceNow. The Motley Fool has a disclosure policy.
A Unique Investing Opportunity: 2 Artificial Intelligence (AI) Stocks to Buy Now and Hold for the Long Term was originally published by The Motley Fool