We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Zacks Rank #1 (Strong Buy) stock ServiceNow ((NOW - Free Report) ) is a software platform provider that offers solutions for enterprise service management (ESM). The ServiceNow platform empowers companies to simplify and automate a range of business operations with an emphasis on IT services while also branching out into fields such as resources, customer support, security, and beyond.
Software is “Eating the World”
Silicon Valley legend Marc Andreessen is an American businessman and software engineer most famous for co-founding Netscape, one of the first widely used internet browsers. Since then, Andreessen’s venture capital firm has become one of the most influential investment firms in the world.
In a 2011 Wall Street Journal piece, Marc Andreessen proclaimed that “software is eating the world.” The statement encapsulates the idea that software, in the form of computer programs and algorithms, is becoming increasingly integral to and influential in almost every sector of the economy. The rise of digital technology and the ubiquity of the internet have enabled software to reshape traditional industries, disrupt established business models, and redefine how we work, communicate, and consume.
From an investor perspective, the long-term returns have been phenomenal. For example, the iShares Software ETF ((IGV - Free Report) ), which tracks a basket of North American software stocks, is up +962.10% over the past 15 years, dwarfing the +612.80% returns the S&P 500 Index accrued. However, year-to-date returns are less impressive, with IGV’s 8.93% lagging behind the S&P 500’s 17.87% return.
Is Software Still King?
The essence of the “software is eating the world” quote lies in the notion that software is not confined to the tech sector but is now a fundamental driver of innovation and efficiency across diverse fields, from healthcare and finance to transportation and entertainment. The predictive quote has come to fruition in the years since Andreessen boldly predicted the onset of software. You would be hard-pressed to walk into any Fortune 500 company without seeing multiple software layers, from HR to organizational and planning software.
Within the software industry, ServiceNow is uniquely positioned to benefit for three significant reasons, including:
1. ServiceNow Benefits from Automation & Cost-Cutting Measures
For those who have paid close attention to the employment market, the fight for higher wages is backfiring in several industries. Though the U.S. minimum wage is $7.25, some states have raised the minimum wage much higher due to political pressure. For instance, the minimum wage in California has ballooned to $16 per hour for all employers, regardless of size. The impact can be seen in many fast-casual restaurants and national chains. Starbucks ((SBUX - Free Report) ), whose stock has risen for more than a decade as the coffee kingpin has consistently beat earnings, has stagnated in recent years and may be a candidate for automation and cost cutting. The stock has retreated from its all-time highs in 2021, and the normally consistent earnings winner has missed Zacks Consensus EPS estimates in five of the past eleven quarters.
Increasing input costs such as wages, real estate, and food costs are causing companies to turn to automation to cut costs. Starbucks is likely to move in the direction of automation because it just hired former Chipotle (CMG) CEO Brian Niccol. Niccol, who turned around Restaurant Brand’s ((QSR - Free Report) ) Taco Bell, was in the process of starting an automation program in CMG locations before he moved to Starbucks. With little other choice to grow earnings at SBUX, I predict Niccol will do the same in his new post. Furthermore, supermarkets like Amazon’s ((AMZN - Free Report) ) Whole Foods Markets have invested significantly in self-checkout kiosks. Meanwhile, if you walk into most McDonalds ((MCD - Free Report) ) locations, you will likely be met with a mostly automated experience. While I used the food industry as an example, this race for automation is taking hold across all industrie,s as evidenced by recent earnings surprise history.
Image Source: Zacks Investment Research
2. Shift to Work from Home
As of August 2023, ~12% of U.S. workers are fully remote, while nearly 5 million have a hybrid work schedule. ServiceNow’s suite of products should be in demand for the foreseeable future as Fortune 500 companies leverage its technology to ensure employees are efficient and are on the same page.
3. Lower Interest Rates are Bullish for Software
Much of the software industry’s poor performance over the past year can be traced to a “hawkish” Federal Reserve. Higher rates cap economic activity and discourage consumers and businesses from spending more. For software companies, lower rates can translate to increased demand for their products and services as businesses invest in new software to improve operations. Meanwhile, consumers tend to spend more on technology-related goods and services. Finally, lower interest rates generally lead to higher valuations for tech stocks. Investors are pricing in an almost guaranteed rate cut in September, November, and December.
Beyond the catalysts mentioned, ServiceNow has a pristine balance sheet and delivers hockey stick-like top-and-bottom line growth.
Image Source: Zacks Investment Research
Bottom Line
Workday, a software enterprise leader, is poised to benefit from work-from-home and automation trends in the software industry. Moreover, the company should benefit handsomely from a “dovish” Federal Reserve.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Bull of the Day: ServiceNow (NOW)
What Does ServiceNow Do?
Zacks Rank #1 (Strong Buy) stock ServiceNow ((NOW - Free Report) ) is a software platform provider that offers solutions for enterprise service management (ESM). The ServiceNow platform empowers companies to simplify and automate a range of business operations with an emphasis on IT services while also branching out into fields such as resources, customer support, security, and beyond.
Software is “Eating the World”
Silicon Valley legend Marc Andreessen is an American businessman and software engineer most famous for co-founding Netscape, one of the first widely used internet browsers. Since then, Andreessen’s venture capital firm has become one of the most influential investment firms in the world.
In a 2011 Wall Street Journal piece, Marc Andreessen proclaimed that “software is eating the world.” The statement encapsulates the idea that software, in the form of computer programs and algorithms, is becoming increasingly integral to and influential in almost every sector of the economy. The rise of digital technology and the ubiquity of the internet have enabled software to reshape traditional industries, disrupt established business models, and redefine how we work, communicate, and consume.
From an investor perspective, the long-term returns have been phenomenal. For example, the iShares Software ETF ((IGV - Free Report) ), which tracks a basket of North American software stocks, is up +962.10% over the past 15 years, dwarfing the +612.80% returns the S&P 500 Index accrued. However, year-to-date returns are less impressive, with IGV’s 8.93% lagging behind the S&P 500’s 17.87% return.
Is Software Still King?
The essence of the “software is eating the world” quote lies in the notion that software is not confined to the tech sector but is now a fundamental driver of innovation and efficiency across diverse fields, from healthcare and finance to transportation and entertainment. The predictive quote has come to fruition in the years since Andreessen boldly predicted the onset of software. You would be hard-pressed to walk into any Fortune 500 company without seeing multiple software layers, from HR to organizational and planning software.
Within the software industry, ServiceNow is uniquely positioned to benefit for three significant reasons, including:
1. ServiceNow Benefits from Automation & Cost-Cutting Measures
For those who have paid close attention to the employment market, the fight for higher wages is backfiring in several industries. Though the U.S. minimum wage is $7.25, some states have raised the minimum wage much higher due to political pressure. For instance, the minimum wage in California has ballooned to $16 per hour for all employers, regardless of size. The impact can be seen in many fast-casual restaurants and national chains. Starbucks ((SBUX - Free Report) ), whose stock has risen for more than a decade as the coffee kingpin has consistently beat earnings, has stagnated in recent years and may be a candidate for automation and cost cutting. The stock has retreated from its all-time highs in 2021, and the normally consistent earnings winner has missed Zacks Consensus EPS estimates in five of the past eleven quarters.
Increasing input costs such as wages, real estate, and food costs are causing companies to turn to automation to cut costs. Starbucks is likely to move in the direction of automation because it just hired former Chipotle (CMG) CEO Brian Niccol. Niccol, who turned around Restaurant Brand’s ((QSR - Free Report) ) Taco Bell, was in the process of starting an automation program in CMG locations before he moved to Starbucks. With little other choice to grow earnings at SBUX, I predict Niccol will do the same in his new post. Furthermore, supermarkets like Amazon’s ((AMZN - Free Report) ) Whole Foods Markets have invested significantly in self-checkout kiosks. Meanwhile, if you walk into most McDonalds ((MCD - Free Report) ) locations, you will likely be met with a mostly automated experience. While I used the food industry as an example, this race for automation is taking hold across all industrie,s as evidenced by recent earnings surprise history.
Image Source: Zacks Investment Research
2. Shift to Work from Home
As of August 2023, ~12% of U.S. workers are fully remote, while nearly 5 million have a hybrid work schedule. ServiceNow’s suite of products should be in demand for the foreseeable future as Fortune 500 companies leverage its technology to ensure employees are efficient and are on the same page.
3. Lower Interest Rates are Bullish for Software
Much of the software industry’s poor performance over the past year can be traced to a “hawkish” Federal Reserve. Higher rates cap economic activity and discourage consumers and businesses from spending more. For software companies, lower rates can translate to increased demand for their products and services as businesses invest in new software to improve operations. Meanwhile, consumers tend to spend more on technology-related goods and services. Finally, lower interest rates generally lead to higher valuations for tech stocks. Investors are pricing in an almost guaranteed rate cut in September, November, and December.
Beyond the catalysts mentioned, ServiceNow has a pristine balance sheet and delivers hockey stick-like top-and-bottom line growth.
Image Source: Zacks Investment Research
Bottom Line
Workday, a software enterprise leader, is poised to benefit from work-from-home and automation trends in the software industry. Moreover, the company should benefit handsomely from a “dovish” Federal Reserve.