NICE One Pager Pitch (No Paywall)
A short summary why to be long NICE
Nice Ltd (NICE) will be an immediate inference AI beneficiary where the market is discounting the opportunity driven by one-time unexpected headwinds like the CEO abruptly retiring that will dissipate within the next twelve months (NTM), making it one of the most undervalued “AI stocks” that the market has to offer. I believe that the NTM shares will reprice to 17.0x FY2026 FCF from today’s 10.8x multiple (my estimates), implying $292/share, representing a 57.18% upside.
Business Overview: NICE is a CCaaS (Contact Center as a Service) company that provides call center agents with software to increase customer loyalty (hospitality), policyholder retention (insurance), customer satisfaction (retail), and more. NICE cloud-based software streamlines customer interactions by integrating voice, chat, and email communication channels into one screen for call agents (omnichannel). It enhances customer experience management with advanced analytics and automation that drives efficiencies for enterprises worldwide. An example of how telecom companies like Verizon use NICE CCaaS software in their call centers to enhance customer interactions is when an inbound call comes in; NICE analyzes the customer's voice, tone, and words in real-time. If the customer expresses interest in switching providers or learning about new products, the software automatically suggests relevant products or promotions to the agent. This allows the agent to upsell effectively, offering items by the SKU, price, and promotion details.
Growth Lever #1: AI inference impact for NICE will create a higher margin and make it one of the fastest-growing public cloud stocks at scale. With the evolution of LLMs in recent years, NICE has been at the forefront of development, and with the most data in the industry, analyzing 2 trillion call center words per month, NICE has built a leading “auto-pilot” product that will replace call center agents in the millions through 2030. I believe that autopilot alone will represent 47.8% of NICE revenue by 2030, vs today at 6.2%, and it will grow at a CAGR of 59.5% through 2030.
Growth Lever #2: Enterprise CCaaS cloud adoption is in its early innings and is being accelerated by AI adoption. Moving off on-premise is essential within the contact center industry as it allows for the simple scalability of volumes, which is a must for top service, and this is just one of the benefits. Additionally, to host any AI features, an enterprise must be based on the cloud, which is driving conversions, and with just 20% of the enterprise contact center industry on the cloud, according to Gartner, the cloud transition story is in its early innings with teens+ growth for years.
Near-Term #’s: In my view, the market is pricing in for NICE to meet its FY2024 EPS/FCF guide. My differentiated view materializes in the numbers in FY2025/26, where I think the business will do FCF/share of $13.12, 20.6%% Variance vs. Consensus, and $16.63, 206.6% Variance vs. Consensus in FY25/26, respectively. Additionally, each year achieves the rule of 40 principle.
Valuation: At $177, NICE trades at 10.8x my FY26 FCF; investors are mispricing this, and it will re-rate to 17x in the NTM, which is a lower multiple than its median comp set. Meanwhile, NICE has higher margins and grows its top/bottom line faster than its teen % growth software peer set.
Risks: Greatest risk is a recession in the West; it would create an “air pocket” in the CCaaS industry as it decreases call volumes and causes agent layoffs, implying fewer seats NICE can serve.
