2 Artificial Intelligence (AI) Stocks to Buy Now and Hold for the Long Term

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The technology landscape has changed dramatically in recent decades. Consider the rise 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 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 technology that will define the next decade. JPMorgan Chase CEO Jamie Dimon recently opined that AI could be as transformative as the printing press, the steam engine and electricity, let alone computers and the internet.

With that in mind, Service now (NYSE: NOW) And Docebo (NASDAQ:DCBO) stand out as stocks worth buying. This is why.

1. ServiceNow

ServiceNow helps companies digitize, optimize and automate workflows in different departments. The core competency is technology workflows such as IT service and operations. However, the platform also includes tools for customer workflows, such as customer service; employee workflows, such as human resources (HR); and maker workflows, such as application development and process automation.

The company is building artificial intelligence (AI) capabilities in its platform for years and quickly added generative AI features after ChatGPT popularized the technology. For example, IT and HR staff can access incident summaries to address issues more efficiently, and developers can use text-to-code functionality to build products faster. ServiceNow is well positioned to monetize these features for two reasons.

First, it is already the market leader in AI for IT operations software, indicating that it has the necessary technical expertise. Secondly, it is also a market leader in IT service and operations management and has a strong presence in digital process automation and customer service solutions.

In other words, ServiceNow has built brand authority within a broad customer base to 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 rose 24% to $2.6 billion, a modest acceleration from last year's 22% growth, and non-GAAP net income rose 44% to $3.41 per diluted share. However, the company expected subscription revenue growth of about 22% in the second quarter. That was slightly lower than Wall Street expected, so the stock fell about 5% after the report.

Investors should view this decline as a buying opportunity. ServiceNow has captured just 10% of its $220 billion addressable market, leaving a long path for growth with core applications. Furthermore, spending on generative AI software is expected to increase 59% annually through 2032. CEO Bill McDermott believes this adds $1 trillion to the addressable market.

Wall Street expects ServiceNow to grow revenue 20% annually over the next five years. That makes the current valuation of 16.9 times sales reasonable. Of the 42 analysts covering ServiceNow, the stock has an average price target of $850 per share, implying an upside of 20% from the current price of $710 per share.

2. Docebo

Docebo specializes in business learning. This platform allows organizations to create, manage, deliver and measure training programs. While older learning management systems (LMS) focus on formal learning, Docebo combines formal, social and experiential learning, and the platform addresses both internal (employee) and external (customer) use cases.

The company is capturing market share from existing vendors in internal LMS use cases and is the market leader in external LMS use cases, according to Morgan Stanley. Innovative products, such as Docebo Flow and Docebo Shape, have played a major role 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 Docebo is winning major customers. Additionally, customer numbers increased by 11% during the quarter and the average existing customer spent 4% more. In turn, sales rose 27% to $46 million and net income rose 100% to $0.10 per diluted share.

Morgan Stanley considers Docebo one of the software companies best positioned to monetize generative AI, due to its data and product roadmap. In short, Docebo's strong presence in the market means that it has unique data that can support product development. Additionally, the company plans to expand Docebo Shape this year with a natural language interface and virtual role-playing technology, enabling greater automation of content creation and more immediate feedback on training materials.

With that in mind, Wall Street expects Docebo to grow revenue 25% annually over the next five years. I think this consensus estimate leaves room for upside, but even if Wall Street is right, the current valuation of 8.4 times sales looks cheap. Of the twelve analysts covering Docebo, the stock has an average price target of $65 per share, implying an upside of 44% from the current price of $45 per share.

Should you invest €1,000 in ServiceNow now?

Before purchasing shares in ServiceNow, consider the following:

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennevine has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Docebo, JPMorgan Chase, and ServiceNow. The Motley Fool has one disclosure policy.

A once-in-a-decade investment opportunity: 2 artificial intelligence (AI) stocks to buy now and hold for the long term was originally published by The Motley Fool

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