We recently compiled a list of the 10 Best Information Technology Services Stocks to Buy. In this article, we are going to take a look at where ServiceNow Inc. (NYSE:NOW) stands against the other information technology services stocks.
Information technology (IT) services are a key component of the broader IT market, which also includes services, devices, enterprise software, and data center systems. By 2023, global IT spending had surged to over $1.3 trillion. Regionally, North America and Asia were projected to account for 66% of global IT expenditure in 2022. Meanwhile, IT services spending in Latin America has consistently held a 6% share since 2019. Cloud computing is one segment of the broader IT market that is experiencing robust growth, with end-user spending anticipated to exceed $590 billion by 2023. Projections from Mordor Intelligence indicate an increase from $0.68 trillion in 2024 to an estimated $1.44 trillion by 2029, reflecting a compound annual growth rate (CAGR) of 16.4%. This upward trend is expected to persist, with the market value approaching $2.5 trillion by 2032. These figures highlight the increasing adoption and utilization of cloud solutions across various industries.
On another front, the advent of 5G technology has led companies to establish networks on their premises. According to Ericsson, global 5G subscriptions are projected to exceed 5.6 billion by the end of 2029, accounting for 60% of all mobile subscriptions. Set to replace 4G by delivering ultra-fast speeds and significantly reduced latency, 5G is expected to become the leading mobile access technology by 2028. In Q1 2024 alone, 5G subscriptions surged by 160 million, bringing the total to 1.7 billion.
According to Gartner’s latest forecast, worldwide IT spending will reach $5.06 trillion in 2024, marking an 8% increase from 2023. This revised growth rate is up from the previous quarter’s estimate of 6.8%, setting the stage for IT spending to exceed $8 trillion well before the decade’s end. Additionally, spending on data center systems is anticipated to experience a significant growth surge, rising from 4% in 2023 to 10% in 2024, largely driven by preparations for generative AI. Speaking on this, John-David Lovelock, Distinguished VP Analyst at Gartner, said the following:
“Spending on IT services is projected to grow by 9.7%, surpassing $1.52 trillion and becoming the largest market tracked by Gartner. Enterprises are increasingly unable to compete with IT service firms in attracting talent with critical IT skill sets. As a result, there is a rising need for investment in consulting services over internal staffing. This year marks an inflection point, with more spending on consulting than on internal staff for the first time.”
Moreover, the AI industry has seen significant growth, with global funding doubling to $66.8 billion by 2021. According to a report by Precedence Research, the market will grow to approximately $2,575.2 billion by 2032, reflecting a CAGR of 19% from 2023 to 2032. Additionally, PwC suggests that AI could contribute around $15.7 trillion to the global economy by 2030, surpassing the current combined output of China and India. This contribution is expected to consist of $6.6 trillion from increased productivity and $9.1 trillion from effects related to heightened consumption.
Our Methodology
To identify the best information technology services stocks to buy now, we utilized Insider Monkey’s extensive database, which tracks 920 hedge funds as of Q1 2024. We selected the information technology services stocks that had the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of software engineers at desks working on code for a cutting-edge cloud computing solution.
ServiceNow Inc. (NYSE:NOW)
Number of Hedge Fund Holders: 90
ServiceNow Inc. (NYSE:NOW) is a leading player in the IT Service Management sector, providing solutions that help companies manage their digital workflows. ServiceNow delivered a strong first quarter in 2024, surpassing expectations in all key growth and profitability metrics. Subscription revenue increased by 25% year-over-year to $2.52 billion, while total revenue grew by 24% year-over-year, reaching $2.60 billion.
In May, Oppenheimer reaffirmed its Outperform rating and $825.00 price target for ServiceNow Inc. (NYSE:NOW) following the company’s annual Knowledge conference. Insights from a survey of 48 customers indicated a positive outlook for ServiceNow Inc. (NYSE:NOW)’s future, emphasizing its leadership in workflow automation and a broad product portfolio that attracts increased spending from its existing customers. Despite the favorable sentiment, Oppenheimer noted some caution regarding the long-term impact of the company’s Pro+ adoption plans on pricing.
Of the 920 hedge funds tracked by Insider Monkey, ServiceNow Inc. (NYSE:NOW) was held by 90 funds at the end of Q1 2024, making it one of the best information technology services stocks to buy now.
Here’s what Lakehouse Capital said about ServiceNow Inc. (NYSE:NOW) in its Q1 2024 investor letter:
“US-based software company,ServiceNow, Inc. (NYSE:NOW), provided another strong result, continuing its long and consistent track record of 20%-plus revenue growth combined with healthy profitability. Subscription revenues grew 25% year-on-year to $2.5 billion and free cash flow grew 47% year-on-year to $1.2 billion. The company’s core operating metrics were also impressive with remaining performance obligations growing 26% year-on-year to $17.7 billion (i.e. roughly 2x 2023 revenue) and renewal rates holding steady at 98%. Performance was evenly spread across segments, products, and geographies, with notable strength in the US federal government. The company now boasts 1,933 customers generating in excess of $1 million in Annual Contract Value (ACV), which is pleasing to see as it implies multiple solutions are involved and that the company’s platform model is increasingly resonating with customers. In our view, ServiceNow is one the highest quality software businesses globally as the combination of consistent growth at scale, robust free cash flow generation and a large addressable market make it a compelling opportunity.”
Overall NOW ranks 3rd on our list of the best information technology services stocks to buy. You can visit 10 Best Information Technology Services Stocks to Buy to see the other information technology services stocks that are on hedge funds’ radar. While we acknowledge the potential of NOW as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NOW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.