Recovery of Cloud Software Companies: Investors Look Optimistically to the Future

Analysts at Wells Fargo predict a recovery in customer spending on cloud software as the stable economic environment prompts companies to increasingly invest in AI-enabled technologies. ServiceNow and Salesforce have made significant investments in expanding their AI capabilities, though concerns about return on investment remain. According to the analyst team led by Michael Turrin, ServiceNow has positioned itself as one of the few companies demonstrating tangible monetization opportunities through AI. ServiceNow’s technologies are used to automate IT processes, thereby reducing costs. The company also released a forecast for fourth-quarter subscription revenue that exceeded Wall Street expectations. The outlook for annual subscriptions was raised due to strong customer demand, including from Uber Technologies and Zoom Video Communications. In contrast, Salesforce has not yet sufficiently demonstrated that its AI offerings can lead to double-digit growth in the short term. Despite better-than-expected quarterly sales, the company's forecast for the third quarter fell short of expectations, further fueling concerns about a potential recovery in cloud spending. Wells Fargo analysts see particularly attractive opportunities in companies like ServiceNow that are already benefiting from generative AI technologies. For Salesforce, however, challenging conditions are emerging.