Artificial intelligence (AI) has played a significant role in influencing the stock market. From January 2023 onwards, stocks have been greatly impacted by AI technology. Nvidia , Broadcom , and Micro Computer Super The stocks of the three companies have experienced significant increases of 615%, 165%, and 520%. Due to this substantial price growth, all three companies decided to split their stocks.
The AI companies that may decide to announce splits in 2024 are as follows: Microsoft ( MSFT 0.83% ) and ServiceNow ( NOW 1.88% ) Their stock prices have increased by 70% and 109% since January 2023. If these companies followed the lead of Nvidia, Broadcom, and Supermicro, their shares would be more within reach for the average investor.
In the past, companies have outperformed their competitors. S&P 500 The symbol for the Standard & Poor’s 500 Index is ^GSPC. In the year following the announcement of a stock split, there can be fluctuations in stock prices. Regardless of whether Microsoft and ServiceNow decide to split their stocks, it is essential for investors to thoroughly research before buying shares.
1. Microsoft
Microsoft is the biggest software company globally and the second-largest in the public cloud sector. While it is widely recognized for its Windows operating system and Office productivity suite, Microsoft also excels in business intelligence, communications, and enterprise resource planning software. Analysts predict that Microsoft will account for almost 19% of total enterprise software revenue in 2024.
Microsoft has included generative AI The software portfolio of assistants has been expanded to generate new ways to make money. For example, Copilot for Microsoft 365 is capable of composing text in Word and managing data in Excel. Morgan Stanley It is believed that Microsoft will be able to increase its market presence in enterprise software in the next year by leveraging the power of generative AI. The usage of Copilot for Microsoft 365 by employees has almost doubled in the latest quarter, and the total number of customers has grown by over 60%.
Microsoft Azure has been consistently increasing its market presence in cloud services and platforms, thanks to its strong cybersecurity and database offerings. Additionally, it has established itself as a frontrunner in advanced AI solutions, largely because it is the primary cloud provider for OpenAI. Amy Hood, the CFO, mentioned that the demand for Azure’s AI services surpassed capacity in the June quarter. As a result, the company intends to boost its investments in AI infrastructure by fiscal year 2025.
In the fourth quarter of fiscal 2024, Microsoft’s financial performance was average, surpassing expectations for both revenue and profit. The company saw a 15% revenue growth to reach $64.7 billion. accounting standards commonly acknowledged and followed The profit rose by 10% to $2.95 per diluted share. The growth in net income was slower compared to revenue growth, mainly because of losses from investments and interest payments. Furthermore, the revenue from Azure grew at a slower rate than expected.
According to Wall Street, Microsoft is projected to achieve a 14% annual earnings growth rate in the upcoming three years. This consensus estimate indicates that the current valuation stands at 34. times earnings Seem to be quite pricey. I would steer clear of investing in this stock until the price drops below 30 times the earnings.
2. ServiceNow
ServiceNow offers workflow management software to assist businesses in streamlining and digitalizing processes throughout different departments. Its main expertise lies in IT software. The company leads the market in IT service management, IT operations management, and AI for IT operations software. In addition, analysts have commended its offerings for customer service, low-code application development, and digital process automation.
The close proximity of these elements presents opportunities for cross-selling, as well as the newly introduced set of generative AI tools known as Now Assist. ServiceNow has been developing these for many years. AI ServiceNow incorporated various functionalities into its system, such as virtual assistants, smart document handling, and forecasting tools, to enhance employee efficiency. The company introduced its initial generative AI solutions in September 2023, and the collection has been expanding ever since. Executives believe that the company is exceptionally well-placed to leverage the complete capabilities of generative AI for businesses.
ServiceNow announced robust financial performance in the second quarter, surpassing forecasts for both revenue and profit margins. The company experienced a 22% increase in revenue, reaching $2.5 billion. non-GAAP The company’s net income rose by 32% to $3.13 per diluted share. It is also important to mention that the company sustained a renewal rate of 98%. Outstanding commitment to provide goods or services. increased by 32%, suggesting a promising rise in revenue in the upcoming quarters.
Clients are increasingly adopting generative AI tools, with Now Assist being the company’s fastest-growing product, as stated by management. According to Dan Romanoff in a recent communication, the tool is gaining significant traction. Morningstar Stated about this progress: “ServiceNow is standing out as a leader in AI, especially compared to its competitors who have been more hesitant in adopting generative AI technology.”
ServiceNow is anticipated to increase its adjusted earnings by 20% per year until 2025, according to Wall Street. This average prediction suggests that the current valuation of 64.5 times adjusted earnings may be considered overpriced. Personally, I believe that purchasing this stock at a valuation of around 45 times adjusted earnings would be more preferable.
