First let us have a look at the Nasdaq 100 Technology index. Decades ago I read a headline in an Australian investment publication which just read SIMMERING! That is what this chart is doing. And why not when new technological advances are coming through so thick and fast it is impossible to keep up. Many of them are incremental but not all. There are going to be some big ones and their stock market impact is going to be huge.
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At the moment the red hot game in town is GenerativeAI and ServiceNow, the red hot breakout referenced above, is a key player.
AI has strengthened the market dynamics for enterprise software. ServiceNow is the fastest-growing company in this market at relative scale. We have the highest Rule of 50-plus across our peer set with the highest growth of any other large-cap software company. We are the best-performing enterprise software company at IPO. This is a unique, highly differentiated company that is rewriting the benchmarks to be best in class in the SaaS industry.
Bill McDermott, CEO, ServiceNow, Q4 2023, 26 October 2023
Bill McDermott is an interesting guy. He was a hugely successful CEO of SAP, the German enterprise software business. He looks like a movie star with his dark glasses and his mane of swept back white hair but he delivers. At SAP he quadrupled the market value. In October 2019 he left SAP where he was the most highly remunerated CEO of any German company and joined the much smaller ServiceNow. ServiceNow shares are up 3.5 times since he joined despite weathering a savage bear market. Over the same period SAP shares are up 20pc. At this rate it may not be long before ServiceNow overtakes SAP in market value, which is quite a metaphor for how America is outperforming Europe.
McDermott is a punchy guy, not much given to understatement.
ServiceNow Doubles Down on AI Investments
Looking beyond the quarterly results, while the world’s challenges are sobering, the digitisation imperative is stronger than ever. Gartner forecasts that $3 trillion will be spent on AI and gen AI between 2023 and 2027. Gen AI represents 36pc of AI spending overall. We believe every dollar of global GDP will be impacted by AI over the next several years. This isn’t a hype cycle; it is a generational movement.
In the last year, ServiceNow has doubled down on our AI investments. Our Vancouver release includes generative AI-powered Now Assist for every workflow. Others issued press releases; we released products. At ServiceNow, our strategy isn’t about exuberance; it’s about execution. We’ve carefully laid the groundwork for success in talent and resources and technology.
This investment is accelerating our already robust pipeline with customers lining up to be first movers in this next wave of business transformation. The question we’ve been asked repeatedly, does AI drive growth? The definitive answer is yes, it does. Gen AI represents a tailwind of growth for ServiceNow. We have over 300 customers in our pipeline from every industry, every buying centre, in every stage of testing. Our gen AI SKU drove the highest number of customer requests for a prerelease product in our history.
We launched Vancouver on September 29th. That left us one day in Q3 to sign deals, and we signed four large deals. A U.S. government agency selected our premium SKU offerings to be an early adopter of gen AI. Real estate leader, CBRE, is harnessing generative AI with ServiceNow to deliver superior service to customers and employees while reducing costs.
Bill McDermott, CEO, ServiceNow, Q4 2023, 26 October 2023
This company is so hot it is smoking.
Bottom line, this all points to growth for ServiceNow. In closing, we’re building a company for the ages. By concentrating on customer value, we are creating immense shareholder value. At a strategic level, we chose to set the bar high to be the defining enterprise software company of the 21st century.
We have an inspired team that is committed to our exponential dream. A company is only as great as each member of the team, and the team is only as great as the company, that is what culture is all about. Our employee engagement scores increased across the board this year, so did our retention rates which are already best in class. We never went for layoffs. We went through thoughtful, careful expansion. When you look at the ongoing momentum from Knowledge ’23, it’s clear, the approach is working.
The profitable growth profile of this company speaks for itself. The market is there for us, and now we’re focused on Q4, delivering a strong full year and a fast start in 2024 as well.
Bill McDermott, CEO, ServiceNow, Q4 2023, 26 October 2023
Strategy – Buy Shares in ServiceNow
I often wonder how many of my subscribers read my stuff and act on it. Obviously I am not infallible and it is tough to perform in a bear market but that is all over now and a new bull market, potentially an incredible bull market, is gathering strength. So do something guys and girls. Don’t miss it.
Share Recommendations
ServiceNow. NOW. Buy @ $746
Postscript
There is a business principle that many growth companies in the tech sector are using to create higher company valuations and strengthen company performance. The concept is known as the Rule of 50.
Stated simply, the Rule of 50 is governed by the principle that if the percentage of annual revenue growth plus earnings before interest, taxes, depreciation and amortisation (EBITDA) as a percentage of revenue are equal to 50 or greater, the company is performing at an elite level; if it falls below this metric, some degree of refocusing is required.
VentureBeat
What does this mean? At ServiceNow the growth in annual sales (25pc) plus the operating margin (27.1pc) is more than 50; that is an elite company for sure.
