Over the last few weeks, artificial intelligence (AI) has been seen as a significant threat to many software companies. But one CEO just told investors, “AI is expanding our market opportunity.” And based on the company’s most recent earnings and its outlook, I think he’s right. Still, much of the market still doubts whether AI-powered software will lead to a turnaround for Nice (NASDAQ: NICE).
But Nice is now well positioned to accelerate growth over the next few years, and its stock looks like an incredible bargain right now.
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Nice’s flagship product is CXone Mpower, its cloud-based contact-center-as-a-service platform. CXone handles incoming customer messages via phone, web chat, text, social media, email, and just about any other channel for contacting a business. It routes every message to customer service agents, optimizing agent workloads and minimizing customer wait times.
Customer service is an excellent opportunity for the implementation of generative AI. A large language model with access to a company’s knowledge base, customer information, and best practices could handle a significant number of cases for contact centers. That could be seen as a major threat to Nice or a significant opportunity.
So far, Nice has capitalized on the opportunity. Its AI-related revenue growth is accelerating, up 66% last quarter. That’ll be fueled in 2026 with the addition of Cognigy, a conversational AI agent developer. Nice is also increasing its AI spend by about $95 million this year, with an increased investment in compute to scale AI agents and a larger R&D budget to improve its AI capabilities.
The momentum should enable Nice to deliver meaningful acceleration in its cloud revenue growth, arguably its most important segment, which has experienced a marked slowdown over the last few years. Management is guiding for 14.5% to 15% cloud revenue growth for 2026, accelerating from 13% growth last year. That’s supported by its backlog, which climbed 25% year over year in the fourth quarter. Long term, the company’s AI investments should help accelerate cloud growth over the long term. Management guided for 17% to 19% growth for the segment in 2028 at its investor day last fall.
In the meantime, the company is returning about half of its free cash flow to shareholders through share repurchases. It announced a new $600 million authorization alongside its fourth quarter earnings. That’s a significant portion of the $7 billion market cap. With the stock trading at close to 10 times earnings estimates, it looks like an excellent use of capital for both the company and prospective investors.
