Artificial intelligence has not yet truly replaced workers in the workplace, but it is managing to topple companies. The 10% plunge in the shares of Israeli company NICE Ltd. on the Nasdaq Monday, and a 17.5% decline on the Tel Aviv Stock Exchange Tuesday, can be explained first and foremost by investor fear that NICE will not be able to compete against the cheaper alternatives offered by well‑established AI‑based companies, and that its profitability is on the path to erosion.
Since the beginning of the year, NICE’s stock has dropped by 30%, and it is now at its lowest valuation since the eve of the COVID outbreak. At its peak then, its market value reached $20 billion and it was the highest‑valued Israeli company. Today it is only around $5.5 billion. This drop is wildly out of line with the surge in the share prices of AI‑based companies, whose valuations are climbing fast amid investor enthusiasm.
The stagnation of NICE, a company whose origin is in the defense industry, appears even more symbolic contrasted with the results of Elbit Systems, whose shares soared in recent days following the announcement of a major deal worth 2.3 billion shekels. The company also published quarterly results showing net profit of $159 million in the quarter. The defense‑industry and “defense‑tech” market are booming in the past year, as is the AI market. NICE, in this case, fell between the cracks.
NICE developed software for customer‑relationship management and call‑center operations. According to estimates and studies, this domain is one of the first in which workers will be replaced by AI systems, and AI agents are expected to handle the majority of customer inquiries. In light of this, NICE’s future appears somewhat shaky.
The company’s CEO, Scott Russell, announced a renewal program for the company, including the acquisition of German company Cognigy for $955 million. Cognigy developed conversational‑AI agent technology for service centers and has customers mainly in Europe. Equipped with these capabilities, NICE could offer a combined service where initial customer‑responses are handled by AI and, at the proper point, human agents can engage in the conversation.
On the surface this should have sparked great investor excitement. Yet this week it was demonstrated again that investor enthusiasm or disappointment does not stem directly from company announcements and the data they present. The company’s readiness to invest effort and money heavily in rebuilding its product line so it fits the AI era – these aspects garnered a rather lukewarm reaction, if not worse.
In the report published by NICE last week it lowered its full‑year profit forecast while raising its revenue forecast, as a result of the Cognigy acquisition. CEO Russell described the current period as one full of opportunities for the company and stated that the AI capabilities that NICE just acquired will help it significantly increase company revenues.
The problem was that analysts were not convinced and they changed their recommendations. Most analysts lowered the target price for the stock by 10% or more, and changed their ratings from “buy/hold” to “neutral." The core issue in their analyses is doubt whether NICE will succeed in overcoming the drop in profits and return to a growth path. For many investors, no more was needed than that—and they rushed to sell their holdings in the company.
Under the leadership of the prior CEO, Barak Eilam, the company underwent a restructuring of its product and a shift toward providing cloud services. That process, too, was investment‑ and risk‑heavy, but succeeded. Now the company is entering unfamiliar and unproven territory. There is a lot of talk about AI agents, but few actual implementations. NICE’s move that brings reduced profitability alongside slower growth is scaring investors away. They have many channels for investing in AI‑driven growth and it is not clear that NICE is their preferred company for that pursuit.
The challenge facing CEO Russell is to stabilize the company, prove the viability of Cognigy’s technology, and demonstrate NICE’s ability to integrate it into an attractive service