The technology landscape has changed dramatically in recent decades. Consider the advent of the internet in the 1990s, the proliferation of mobile devices in the 2000s, and the migration to cloud computing in the 2010s. Those innovations changed the world and created lucrative investment opportunities in the process.
A litany of esteemed business leaders and analysts see artificial intelligence (AI) as the next decade-defining technology. JPMorgan Chase CEO Jamie Dimon recently opined that AI could be as transformative as the printing press, the steam engine, and electricity, let alone computing and the internet.
With that in mind, ServiceNow(NYSE: NOW) and Docebo(NASDAQ: DCBO) stand out as stocks worth buying. Here's why.
1. ServiceNow
ServiceNow helps businesses digitize, optimize, and automate workflows across departments. Its core competency is technology workflows like IT service and operations. However, its platform also includes tools for customer workflows, like customer service; employee workflows, like human resources (HR); and creator workflows, like application development and process automation.
The company has been building artificial intelligence (AI) capabilities into its platform for years and was quick to add generative AI features after ChatGPT popularized the technology. For instance, IT and HR workers can access incident summaries that help them address issues more efficiently, and developers can use text-to-code functionality to build products more quickly. ServiceNow is well-positioned to monetize those features for two reasons.
First, it already leads the AI for IT operations software market, indicating that it possesses the necessary technical expertise. Second, it also leads the IT service 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 across a broad customer base into which it can sell AI products. To that end, the company sees itself as "uniquely positioned to bring the full potential of generative AI to the enterprise," according to its latest Form 10-K.
ServiceNow reported first-quarter results that narrowly beat estimates. Revenue increased 24% to $2.6 billion, a modest acceleration from 22% growth last year, and non-GAAP net income surged 44% to $3.41 per diluted share. However, the company guided for subscription revenue growth of roughly 22% in the second quarter. That was a shade lower than Wall Street expected, so the stock slipped about 5% following the report.
Investors should treat that drawdown as a buying opportunity. ServiceNow has captured only 10% of its $220 billion addressable market, leaving a long runway for growth with core applications. Additionally, generative AI software spending is projected to increase at 59% annually through 2032. CEO Bill McDermott believes that adds $1 trillion to its addressable market.
Wall Street expects ServiceNow to grow sales at 20% annually over the next five years. That makes its current valuation of 16.9 times sales seem reasonable. Indeed, among the 42 analysts who follow ServiceNow, the stock carries a median price target of $850 per share, implying 20% upside from its current price of $710 per share.
2. Docebo
Docebo specializes in corporate learning. Its platform lets organizations create, manage, deliver, and measure the impact of training programs. Whereas legacy learning management systems (LMS) focus on formal learning, Docebo blends formal, social, and experiential learning, and its platform addresses both internal (employees) and external (customers) use cases.
The company is taking market share from legacy vendors in internal LMS use cases and leads the market in external LMS use cases, according to Morgan Stanley. Innovative products, like Docebo Flow and Docebo Shape, have been instrumental in that success. Docebo Flow is an experiential learning application that injects training content into other software. Docebo Shape is a generative AI application that automates the creation of learning content.
Docebo reported encouraging results in the fourth quarter. Management highlighted a new deal with a top-four bank and an expanded deal with a top-five technology company, showing that Docebo is winning large customers. Additionally, its customer count climbed 11% during the quarter, and the average existing customer spent 4% more. In turn, 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-positioned to monetize generative AI, due to its data and product roadmap. To elaborate, Docebo's strong market presence means it has unique data that can inform product development. Additionally, the company plans to enhance Docebo Shape with a natural language interface and virtual role-play technology this year, enabling greater automation of content creation and more immediate feedback on training material.
With that in mind, Wall Street expects Docebo to grow sales at 25% annually over the next five years. I think that consensus estimate leaves room for upside, but even if Wall Street is correct, the current valuation of 8.4 times sales look cheap. Among the 12 analysts who follow Docebo, the stock carries a median price target of $65 per share, implying 44% upside from its current price of $45 per share.
Should you invest $1,000 in ServiceNow right 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.
