ServiceNow (NOW)

For the Canadian telcos, regulatory challenges won't go away. In response, the telcos pledged to invest in rural areas, but those areas now have Starlink. Also, Freedom Mobile and Quebecor have added a lot more competition. The telcos won't bounce back anytime soon.

He just added it. NOW is two standard deviations below its valuation. He sees AI adoption as a complement, not substitute to NOW. It's time to start picking at names that have been beaten. This will be a winner. It now trades around 25x PE, down from 50-60x a year ago. He will add more if this falls further.

There is tremendous opportunity in software, but it won't see a V-shaped recovery. The NOW CEO just bought many shares last week. NOW has a strong moat.

Is -34% this year. Earnings growth expected at 19% this year. Trades at only 24x PE, down from 70x at end-2024. They just announced a big share buyback. 

Software stocks have been hit hard, because the market believes that AI will replace their service. He didn't like NOW at $200 a year ago, but likes it lot more now at $118. Last year, he started writing puts on this.

Anything software has getting punished now over fears that AI will replace it. But NOW just reported a good quarter, beating on every key line. PE has fallen from 64x to 28x. Likes it, but he doesn't blame anyone avoiding software stocks.

Business software stocks have been hammered by the market feeling that they will taken over by AI, but we haven't seen this in the company earnings. NOW shares are -45% from last year's peak. They just delivered a good quarter and a $5 billion share buyback.

It reports Wednesday. Business remains good, but enterprise software stocks have been hit in recent years due to AI. NOW is -41% the past year. The CEO must explain that this is a broken stock, not broken company.

He added more, despite NOW hitting a 52-week low yesterday. It's probably reached peak pessimism. It will separate from the pack, because its moat because CTO's won't introduce new AI start-ups that are supposed to disrupt the data space with companies they've been building in Silicon Valley in recent years. Also, NOW's earnings and free cash flow are growing, so it's growing into its high valuation.

In time, the CEO will execute and the stock will recover from its 52-week low currently. The balance sheet is in great shape and revenues are growing, but momentum is poor. Would not add now. Software is in the dog house.

Software names are down. NOW is -30% the past 6 months. He can't call a bottom on it.

Hardware companies are beating the software ones, and this trades at a high 42x PE. Shares slid on Friday, but didn't bounce back today. Software is struggling with AI now.

In his portfolios, certainly less than 10% (and maybe even less than 5%) in software stocks. A lot of generative AI is displacing the magic that comes from these software companies. Look for places to get out. Chart shows it's consolidating; there may be another leg higher, but it's too early to make a call on that.

ITSM (IT service management) platform. Integrated into the IT department of a lot of Fortune 500 companies. Implementing a lot of AI solutions at these companies, so this name actually benefits from the AI disruption. Free cashflow compounder for a very long time. 

Has shown some of the most durable revenue growth in the entire market. Though more expensive, definitely likes it more than CRM. Deserves the valuation premium because it executes so well. Good long-term hold. Over time, need to see traction around AI for the story to continue working. Great company.