Reports of RPA's death have been greatly exaggerated
24 October 2024
ServiceNow's results show that genAI is a booster for RPA, not the death knell some had predicted.
Bottom line
AI applications have entered their hypergrowth phase. Players with differentiating positioning and/or capabilities are bound to strongly benefit. Productivity, notably through RPA, is already a major winner, reinforcing our investment thesis and validating our allocation shift towards software applications initiated last year.
What happened
ServiceNow published its financial results after the close of the trading session on 23 October. Results were positive on many metrics, with notably a beat on current remaining performance obligations (cRPOs), one of the main SaaS financial metrics indicating the revenue expected to be recognized within 12 months. On the other hand, high expectations from investors led to a slight miss on some parts of the guidance, notably at the operating margin level.
However, what strongly stood out was the extremely strong positive momentum for the AI platform, called "Now Assist". The company notably mentioned a high number of significant deals (44 customers spending >$1mn annually) and a 30% price uplift over its "Pro" offering, leading the product to be the fastest-growing in the company's history.
Impact on our Investment Case
AI is not monolithic
Although OpenAI's ChatGPT and other generative AI (genAI) chatbots monopolize the general attention, they are far from being the only AI applications in town. As we repeatedly stated in previous articles (2024 Outlook, digital transformation, 2023 mid-year review), we are firmly convinced that Robotic Process Automation (RPA), i.e., the capability to automate repetitive office tasks (think input a database every day after receiving a specific set of data), has the potential to benefit strongly from the rise of genAI.
RPA in itself is already a major productivity booster for companies, enabling either employees to focus on higher-value tasks or companies to reduce their headcount for the same amount of work. The rise of genAI, however, had led some to announce that this new generation of AI would replace RPA, considered a legacy application.
The best of both worlds
ServiceNow's results confirm our conviction that nothing could be further from the truth. As expected, RPA and genAI appear extremely complementary. GenAI, being relatively new in the game, is indeed rather isolated from current workflow frameworks, while RPA platforms have been present for long enough to have connectors developed for a large number of tasks. Therefore, it is possible to use genAI's language and increasingly logical capabilities as an interface and RPA as the effector; if we had to draw an analogy, genAI is the brain while RPA is the set of muscles.
This is what ServiceNow is doing. Its latest platform update has rolled out agents (of which some have been developed through a Nvidia partnership) connected to previously developed tools, greatly leveraging their capabilities. Interestingly, the connection is not fully complete yet, as the integration work is in progress. The company has also communicated on a short-term roadmap to move even further, mentioning "deep contextual comprehension". This rapid pace of innovation does not surprise us, considering the developments observed in the chatbot sector, and will only accelerate the adoption rate of AI technologies.
Our Takeaway
The advent of genAI has been a turning point in the technological landscape, with extremely promising outlooks. However, its integration into corporate workflows was a bit more of a question mark. Our conviction was that RPA would be a strong beneficiary, but ServiceNow is actually demonstrating it - management notably mentions a $275bn TAM by 2026 (vs. $220bn in 2025). This shows that companies able to crack the AI nut have an extremely strong structural potential that will benefit their business and, ultimately, investors, far from being a temporary fad that would disappear as rapidly as it arrived. With over 30% of our portfolio exposed to AI applications and ServiceNow being one of our largest holdings, we remain convinced our strategy has bright days ahead.
Companies mentioned in this article
Nvidia (NVDA); OpenAI (Not listed); ServiceNow (NOW)
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