Polen Capital, an investment management company, released its “Polen Global Growth Strategy” fourth-quarter 2022 investor letter. A copy of the same can be downloaded here. The fund returned 6.37% net in the fourth quarter compared to a return of 9.76% for the MSCI ACW Index. In addition, please check the fund’s top five holdings to know its best picks in 2022.
Polen Global Growth Strategy highlighted stocks like ServiceNow, Inc. (NYSE:NOW) in the Q4 2022 investor letter. Headquartered in Santa Clara, California, ServiceNow, Inc. (NYSE:NOW) is a cloud computing solutions provider. On February 8, 2023, ServiceNow, Inc. (NYSE:NOW) stock closed at $463.98 per share. One-month return of ServiceNow, Inc. (NYSE:NOW) was 12.27%, and its shares lost 24.00% of their value over the last 52 weeks. ServiceNow, Inc. (NYSE:NOW) has a market capitalization of $94.188 billion.
Polen Global Growth Strategy made the following comment about ServiceNow, Inc. (NYSE:NOW) in its Q4 2022 investor letter:
“ServiceNow, Inc. (NYSE:NOW) is an $80 billion market cap business based in California. Its purpose is to make the world of work, work better for people. Getting a job done in an enterprise (what the company refers to as “workflow”) usually requires different people in various functions of an organization to work together. Often, they rely on different technology systems and inefficient manual processes to complete each step of the job before moving on to the next.
ServiceNow believes the most effective digital transformation initiative utilizes tools that can integrate workflows across siloed systems, departments, processes, and people. The company is solving what is arguably the biggest pain point in the biggest profit pool in the world (enterprises). Consider the explosion in data growth and all the software point solutions emerging constantly. ServiceNow wrangles all this into a fully integrated dashboard on a global scale with global customers in every industry. Nearly 100% of revenues are subscription based with a 99% renewal rate, and the company currently has no direct competition, according to our research. ServiceNow started with IT workflow, and today, ~40% of net new annual contract value is in non-IT workflows. Through constant innovation, the business has continued to expand its total addressable market, and we think it can grow free cash flow (FCF) at a 20%+ annualized rate for the next three to five years. At less than 30x FCF, we thought the valuation was attractive.”
ServiceNow, Inc. (NYSE:NOW) is on 16th position our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 103 hedge fund portfolios held ServiceNow, Inc. (NYSE:NOW) at the end of the third quarter, which was 99 in the previous quarter.
We discussed ServiceNow, Inc. (NYSE:NOW) in another article and shared the list of “dumbest” companies to invest in. In addition, please check out our hedge fund investor letters Q4 2022 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
Waylay, a provider of digital transformation and hyperautomation solutions, has joined the ServiceNow Partner Program to help businesses automate and boost their field service operations.
Waylay will be empowering service organizations using ServiceNow for asset management with its Digital Twin platform to resolve connected asset issues, Improve asset performance visibility, and evolve from reactive to proactive service delivery.
"Waylay's Digital Twin technology perfectly complements ServiceNow, by adding a new offering a unique and innovative approach to streamlining processes, which results in unlocking material new levels of efficiency," said Tom Van Leeuwen, vice president of product management at Waylay, in a statement. "With its real-time data insights and automated decision-making capabilities, Waylay empowers ServiceNow users to drive digital transformation and stay ahead of the curve."
"At Waylay, we are honored to partner with ServiceNow and we will now bring everyone to the next level of automation in field operations heralding unprecedented new value to businesses seeking to revolutionize their operations," said Waylay CEO Leonard Donnelly, in a statement. "Our Digital Twin solution represents the future of work and lightning-fast remediation, which will now enable teams to automate and optimize their processes like never before."
"ServiceNow is the gold standard for enterprise service management, and we are honored to bring our Digital Twin platform to their end users,"; said Veselin Pizurica, Waylay's chief operating officer and co-founder, in a statement. "I am confident that our solution will deliver tremendous value to organizations looking to drive digital transformation and Improve their operations. With DT's real-time data insights and powerful automation capabilities, Waylay is the ideal partner for ServiceNow customers who are seeking to stay ahead in an ever-changing digital landscape."
Google has introduced its conversational AI service Bard. This lightweight version of its own LaMDA AI model is to compete with the recently introduced ChatGPT. Google Search will also soon get integrated AI functionality.
With the introduction of its own conversational AI service or chatbot, Google is opening the attack on OpenAI’s very popular ChatGPT. The tech giant’s response to this popular AI tool has been in the air for some time.
The AI conversation service now announced is based on Google’s own AI models and in particular the LaMDA model. Bard searches for the answer to posed questions, for this it consults the Internet and uses LaMDA AI. By using advanced language models and through natural language processing it then provides an answer.
In this way, the service generates new answers with the highest quality, according to Google CEO Sundar Pichai in his announcement post. It is possible, for example, to explain the operation and discoveries of the James Webb Telescope to a nine-year-old child.
Private preview
For now, the AI conversation service has only been offered to so-called “trusted” test subjects. A so-called private preview. Exactly who these test subjects are, usually large organizations, is not known. In addition, Google explained that only the lightweight version of LaMDA is being used for the tool. This ensures that search actions use less processing power, making scaling up to support more users easier. This will soon allow Google to collect more feedback to Improve the AI conversation service.
Moreover, Google is going to combine external feedback with its own internal test results. With this, Google wants to ensure that Bard’s answers have a high degree of reliability, safety and also match reality (the truth). Among other things, this should prevent bias and racist comments from appearing in the results. Bard should become available to a wider audience in a few weeks.
Integration into Google Search
In addition to the introduction of Bard, Pinchai also announced that Google will integrate its various AI models, such as LaMDA, as well as PaLM, Imagen and MusicLM, into various other proprietary solutions. With this, the tech giant intends to offer new ways to get started with information, images, video and audio.
The first application to get this AI integration is Google Search. Soon we will see Google Search getting undisclosed AI functionality that distills complex information and different perspectives into easy-to-understand or process formats. This will allow users to understand the big picture faster and learn more from the Internet. It looks like Bard will be integrated in Google Search.
Availability of Generative Language API
Last but not least, Google announced that it wants to work with developers, creators and companies to create more AI solutions and applications. These tools should eventually make it easier to build applications with AI.
Within this collaboration, the aforementioned groups will soon have access to the Generative Language API, initially supported by LaMDA. Support for other AI models will follow at a later stage.
Furthermore, startups are also encouraged to start developing AI applications. Google Cloud provides the necessary computing power for this purpose and is also collaborating through partnerships with Cohere, C3.ai and Anthropic, among others.
Tip: Google may present ChatGPT competitor as early as this week
Fears of a recession and other macro headwinds often drive investors to dump their tech stocks and invest in more defensive sectors. However, many tech companies are actually well-equipped to handle deep economic downturns.
Today I'll take a closer look at three tech companies that should remain promising investments during a recession: the cloud-based services provider ServiceNow (NOW -3.24%), the diversified chipmaker Broadcom (AVGO -0.82%), and the Dutch semiconductor equipment maker ASML (ASML -0.66%).
Image source: Getty Images.
1. ServiceNow
ServiceNow's cloud-based tools help companies streamline their work patterns into digital workflows. That digitization process makes it easier for companies to expand, reduce their costs, and support remote workers. It's naturally insulated from recessions since economic downturns usually highlight the growing need for its digital transformation services.
ServiceNow's annual revenue grew at a compound annual growth rate (CAGR) of 30% between 2017 and 2022, and it expects that momentum to continue with a CAGR of at least 21% from 2022 to 2026. Unlike many other high-growth cloud software companies, ServiceNow is firmly profitable on a generally accepted accounting principles (GAAP) basis.
ServiceNow's stock isn't cheap at 53 times forward earnings, and its near-term growth might be crimped by macro and currency challenges. But its early-mover's advantage in digital workflow tools, the stickiness of its subscriptions, and its stable gross margins all suggest it deserves to trade at a premium to slower-growth cloud plays like Salesforce.
2. Broadcom
Broadcom develops a wide range of chips for the data center, networking, broadband, wireless, storage, and industrial markets. It also operates a smaller infrastructure software business, which could grow a lot larger if its proposed takeover of the cloud giant VMware is finally approved.
Broadcom's top client is Apple, which accounted for a fifth of its revenue last year. But it also has limited exposure to the post-pandemic slowdown of the PC market, and it's benefited from the accelerating pace of infrastructure upgrades over the past year.
That diversification makes Broadcom a more balanced semiconductor play than many of its chipmaking peers. Its annual revenue rose at a CAGR of 13% from 2017 to 2022, and analysts expect a stable CAGR of 5% from 2022 to 2025, even as the broader chip market experiences a cyclical slowdown. That outlook doesn't account for its takeover of VMware, which would significantly boost its revenue and reduce its dependence on Apple.
Broadcom is firmly profitable, its stock trades at just 14 times forward earnings, and it pays a hefty forward yield of 3.1%. Those fundamental strengths should make it a sound stock to hold during a recession.
3. ASML
Fabless chipmakers like Broadcom, Qualcomm, Nvidia, and AMD all outsource the production of their chips to third-party foundries like Taiwan Semiconductor Manufacturing and Samsung. However, TSMC and Samsung can't actually manufacture their most advanced chips without ASML's lithography systems, which are used to etch circuit patterns onto silicon wafers.
ASML is the world's largest producer of lithography systems, and it's the only producer of extreme ultraviolet (EUV) systems, which are used to manufacture the world's smallest and densest chips. ASML's monopolization of these systems, which cost $200 million each and require multiple planes to ship, makes it a linchpin of the semiconductor market.
Between 2017 and 2022 ASML's annual revenue grew at a CAGR of 19% as its gross margin expanded from 45% to 50.5%. It expects its top line to continue growing at a CAGR of about 12% from 2022 to 2030 (at the midpoint of its long-term estimates) as its gross margin expands to 56%-60% by the final year.
ASML's stock might seem a bit pricey at 32 times forward earnings, but it will likely remain one of the most important -- and recession-resistant -- technology companies for the foreseeable future.
Leo Sun has positions in ASML, Apple, Qualcomm, and Salesforce. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Nvidia, Qualcomm, Salesforce, ServiceNow, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and VMware and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
Shares of ServiceNow Inc. declined in Monday trading after the company’s chief executive disclosed the sale of a sizable chunk of stock.
CEO Bill McDermott cashed out of almost 54,000 shares, worth nearly $25 million at the time of his Feb. 1 transactions, according to a filing with the Securities and Exchange Commission that came out after Friday’s closing bell. He had 1,933 shares of unrestricted, non-option holdings remaining after the transactions, per the filing.
ServiceNow’s stock NOW, -3.24% fell 3.6% in Monday trading.
Macquarie analyst Sarah Hindlian-Bowler said in a note to clients that she saw “no read-through to the business.” She relayed information from a weekend discussion with ServiceNow in which she said the company indicated that McDermott sold stock to make a personal investment in property that had recently become available.
A ServiceNow spokesperson confirmed to MarketWatch that McDermott sold stock to make a property purchase.
“It could not be clearer how bullish he is on ServiceNow and its future,” the spokesperson said. “ServiceNow stock is the majority of Bill’s compensation, and this is his first stock sale in more than two years. Bill retains a large equity stake in the company; in fact, as his equity awards continue to vest over the next 12 months, he will more than replenish the amount he just sold.”
But for Ben Silverman, the director of research at VerityData, McDermott’s sales seem “opportunistic” given that he declined to sell stock over the prior two years.
“It felt like he was picking a spot here to try to capture a high price with the sale,” he told MarketWatch, as ServiceNow’s stock is “in recovery mode” from its fourth-quarter lows. Shares have gained 17.1% so far this year, after diving 40.2% in 2022.
Silverman, who tracks buyback patterns and insider activity, doesn’t think a real-estate investment is a “good excuse” for a stock sale that made up such a large portion of McDermott’s unrestricted, non-option holdings.
“In fact, that makes it worse,” he told MarketWatch. Real estate is an investment, but so is ownership of ServiceNow shares. “What you’re saying is that he thinks a real-estate investment is a better investment than ServiceNow stock.”
McDermott, who led SAP SE SAP, -1.37% before coming to ServiceNow, received a 2021 pay package worth almost $166 million, noted Silverman, and about $162 million of that was in options or restricted stock.
But the 555,000 long-term options that McDermott has are currently worthless, he noted, since they’re struck at $679.76 over the next few years, whereas ServiceNow’s stock recently changed hands near $460.
“This is no fault of his,” Silverman said, but the options are priced high relative to the stock’s current price. They’re stuck just shy of the stock’s all-time closing high of $701.73 that was seen in November 2021.
Looking at options “doesn’t accurately represent his current equity exposure” in Silverman’s view, since ServiceNow’s share price would need to “move significantly above” $679.76 for the options “to have any real value for him.” Meanwhile, unvested restricted shares are “not his yet.”
Chief Commercial Officer Paul Smith sold all of his unrestricted non-option holdings for about $1 million in January, Silverman noted, and Chief People Officer Jacqueline Canney sold about 80% of hers, worth roughly $500,000, at around the same time.
“This is a company where the prevailing attitude toward stock-based compensation is to generate liquidity and not increase equity exposure for the long term,” Silverman said.
