Cloud software groups recovering heading into the end of 2024, Wells Fargo says

Investing.com - Cloud software providers are expected to see a recovery in customer spending as a resilient economic environment pushes more businesses to invest in their artificial intelligence-powered technologies, according to analysts at Wells Fargo (NYSE:WFC ).

ServiceNow (NYSE:NOW ) and peer Salesforce (NYSE:CRM ) have also been pouring money into building out their own AI capabilities and folding them into their products, although investors have raised concerns around the timeline for the pay off from these expenditures.

In a note to clients, the Wells Fargo analysts led by Michael Turrin argued that ServiceNow is among the few software comapnies "demonstrating tangible AI monetization," adding they expect the group to "play offense" in AI customer service. Businesses use ServiceNow's AI-backed products to automate and manage their IT processes and reduce costs.

Last month, ServiceNow unveiled a fourth-quarter subscription revenue forecast that topped Wall Street expectations.

The firm, which has been rolling out new AI-enhanced offerings to its enterprise clients such as ride-sharing giant Uber Technologies (NYSE:UBER ) and video conferencing service Zoom Video Communications (NASDAQ:ZM ), also increased its full-year subscription revenue outlook thanks to solid demand from new and existing customers.

Meanwhile, ServiceNow's rival Salesforce has yet to show enough evidence its own AI offering will be enough to return growth to double-digits in the near term, the Wells Fargo analysts said.

In August, the software-as-a-service pioneer reported better-than-anticipated revenue of $9.33 billion in its second quarter and raised its annual profit outlook to a range of $10.03 to $10.11 per share, up from $9.86 to $9.94. But Salesforce's guidance for third-quarter revenue still missed expectations, exacerbating worries around a potential rebound in cloud spending.

The Wells Fargo analysts said they see more "attractive opportunities" in companies like ServiceNow that have already shown an ability to make money off of so-called generative AI. The setup for Salesforce heading into next is "tough," they added.

Source: Investing.com