Spending on artificial intelligence (AI) across hardware, software, and services totaled nearly $200 billion last year, according to Grand View Research. However, this number is expected to jump 820% to more than $1.8 trillion by 2030. In other words, the AI market is predicted to grow at a rate of 37% annually until the end of his 20s.
Although many companies will benefit from that upward trend, cloudflare (Net -2.74%) and ServiceNow (now -1.35%) It stands out because it has a strong foothold in relevant markets. Additionally, both stocks trade at reasonable valuations relative to Wall Street’s growth expectations.
Here’s what investors need to know.
1. Cloudflare
Cloudflare operates a connectivity and security cloud. Its platform accelerates and secures software and infrastructure across private data centers and public cloud environments. The company also offers a developer platform that allows companies to build and deploy their websites and applications using their network, with a particular focus on supporting inference for artificial intelligence applications.
Cloudflare has significant advantages in speed and scale. Specifically, the company operates the fastest cloud network and developer platform on the market. It also handles approximately 20% of web traffic, providing deep insight into performance issues and security threats across the Internet. Cloudflare uses that data to continuously route your traffic and more effectively stop threats.
These qualities have enabled the company to establish a strong position in several cloud services markets. For example, International Data Corp. recently acknowledged its leadership in zero trust network access, citing threat detection leveraging machine learning models trained on massive amounts of internet traffic as a key strength. moreover, forrester research recently recognized Cloudflare as a leader in edge development platforms, citing superior products and strong growth strategy compared to peers.
Cloudflare reported impressive financial results in the fourth quarter. The number of customers increased by 17% to 189,791, and average customer spending increased by 15%. As a result, revenue increased 32% to $362 million and non-GAAP (adjusted) net income increased 148% to $53 million. In addition, management said win rates and average deal sizes improved significantly compared to the previous quarter, suggesting increased productivity in the sales force.
Cloudflare’s leadership among edge development platforms positions it well to continue to benefit from AI.Additionally, while its network serves as a unified control plane across private data centers and public clouds, vendors Amazon and microsoft They do not offer the same support. Finally, Cloudflare has added the following features to its network: Nvidia GPU optimized for AI inference.
Last year, CEO Matthew Prince said, “According to our estimates, Cloudflare is the most commonly used cloud provider among major AI startups.” . He also said the company is “uniquely positioned to be a leader in AI inference.”
With this in mind, Wall Street expects Cloudflare’s revenue to grow 25% annually over the next five years, but there is upside to this estimate if the company becomes a major player in AI inference. There is room left. In that context, the current valuation of 24.7 times sales is acceptable. The stock price may be volatile in the short term, but patient investors with a five-year horizon should consider buying a small position today.
2.ServiceNow
ServiceNow helps businesses integrate and digitize workflows across disparate systems. Specifically, its platform integrates with third-party applications from vendors such as Microsoft. atlassian It addresses four main use cases: technology workflows such as IT services, customer workflows such as customer service, employee workflows such as human resources, and creator workflows such as application development and task automation.
ServiceNow is best known for its leadership in IT services and IT operations management. But industry analysts acknowledge the company’s leadership in other software areas as well, including artificial intelligence (AI) for IT operations, digital process automation, and low-code application development platforms.
The company reported strong financial results for the fourth quarter. Revenue increased 26% to $2.4 billion, and non-GAAP net income increased 36% to $3.11 per diluted share. Additionally, remaining performance obligations (unrecognized contract revenue) increased by 29%, suggesting that revenue growth may accelerate in the coming quarters. Part of that momentum is due to demand for generative AI.
ServiceNow leveraged generative AI right after launching ChatGPT. In fact, when the company launched Now Assist last September, it was one of the first major software platforms to offer generative AI capabilities to customers. Assist gives IT services, field service, customer service, and human resources teams the ability to create content, summarize information, and automate interactions.
However, ServiceNow’s innovation goes beyond AI. Last year, the company launched financial and supply chain workflows that simplify and automate the sourcing and purchasing of goods and services. These tools are especially timely as modernizing enterprise resource planning (ERP) systems has become an area of focus for IT.
In other words, ServiceNow has a strong presence in several IT software industries. The company is growing rapidly and continues to bring new products to market at a steady pace. But ServiceNow taps into a small portion of its $220 billion addressable market. This provides the basis for significant sales growth in the foreseeable future.
In fact, Wall Street expects the company to increase sales by 20% annually over the next five years. According to this consensus estimate, his current valuation of 16.9 times sales seems reasonable. Investors looking at a five-year horizon should feel comfortable buying a small position in this growth stock today.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Trevor Jennewine has positions at Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, Atlassian, Cloudflare, Microsoft, Nvidia, and ServiceNow. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
