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ServiceNow (NOW) Set to Acquire AI-Focused Startup Element AI

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ServiceNow, Inc (NOW - Free Report) recently announced that it will be acquiring Canada-based Artificial Intelligence (AI) focused start up, Element AI.

Element AI acquisition will assist ServiceNow to create an intelligent workflow platform to streamline decision-making for businesses and bolster employee productivity, added ServiceNow.

Also, the company intends to set up an AI Innovation Hub in Canada to advance technological development. ServiceNow has several such innovation hubs across the globe including Hyderabad, Chicago, Silicon Valley and San Diego.

Headquartered in Montreal, Element AI is a privately-held company that specializes in innovative technologies like AI, Machine Learning (ML), Natural Language Processing (NLP), and Neural Network.

ServiceNow, Inc. Price and Consensus


ServiceNow, Inc. Price and Consensus

ServiceNow, Inc. price-consensus-chart | ServiceNow, Inc. Quote


The start-up was established in 2016 by Jean Francois Gagné, who currently serves as the CEO along with Anne Martel, Jean Sebastien Cournoyer, Nicolas Chapados, Philippe Beaudoin and Yoshua Bengio. Following the acquisition, Yoshua Bengio will serve as a technical advisor for ServiceNow.

The companies did not divulge the financial terms of the buyout. However, TechCrunch, citing multiple sources, noted that the Element AI purchase was valued at around $500 million.

The acquisition, subject to regulatory and customary approval, is expected to conclude in early 2021.

ServiceNow’s AI Initiatives

Per a Mordor Intelligence Report, Enterprise AI Market is expected to witness a CAGR of 52.17% between 2020 and 2025. Enterprises are deploying innovative technologies like AI to automate workflows and curb costs and achieve efficacy across the board. This is driving the market, added the report.

ServiceNow is focused on advancing its AI capabilities and the acquisition of Element AI is in sync with its efforts to improve Now Platform.

Now platform is the company’s cloud-based service that helps app builders and developers to build workflow solutions seamlessly. The company also integrated Now Intelligence with the Now Platform that assists in embedding Analytics and AI to workflows. ServiceNow introduced Now Intelligence in March this year.

The company acquired three more start-ups in 2020 to enhance its AI capabilities. In June, the accompany acquired configuration data management company –– Sweagle –– to boost its IT Operations Management (ITOM) and DevOps capabilities.

Sweagle’s offerings will enable ServiceNow’s customers to identify and avoid application and infrastructure misconfigurations to avert production breakdown by utilizing ML.

Prior to that, in January, the company purchased Passage AI for an undisclosed sum. Passage AI’s solutions will enable support for all major languages across the Now platform including ServiceNow Virtual Agent, Workspaces and Service Portal.

Loom Systems’ buyout (January 2020) augmented the company’s AIOps capabilities.  Loom system’s offerings will facilitate customers to thwart IT issues by generating valuable insights into their IT operations.

ServiceNow’s AI-focused endeavours are expected to boost the number of takers for the Now Platform. The company is well placed to benefit from the spurt in digital transformation taking place across all verticals due to the COVID-19 crisis.

This is likely to boost investor optimism and instil confidence in the stock. Notably, shares of ServiceNow have returned 89.3% on a year-to-date basis compared with the industry’s growth of 36.3%.

Nevertheless, sluggish IT spending especially among small and medium-sized business (SMBs) due to coronavirus-induced macroeconomic weakness, is likely to negatively impact demand for ServiceNow’s offerings at least in the near term.

Zacks Rank and Key Picks

Currently, ServiceNow carries a Zacks Rank #3 (Hold).

Some other top-ranked stocks in the broader technology sector are Cirrus Logic (CRUS - Free Report) , Qorvo (QRVO - Free Report) , and Avnet (AVT - Free Report) . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Cirrus Logic, Qorvo and Avnet is pegged at 7.1%, 15.8% and 19%, respectively.

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