The AI doomsayers have been having a field day with enterprise software stocks. ServiceNow and Salesforce got pummeled as investors convinced themselves that ChatGPT and its ilk would render their platforms obsolete. But John DiFucci of Guggenheim is calling bullshit.
On Wednesday, DiFucci upgraded both stocks from Neutral to Buy, arguing that the market has overcorrected. The valuations, he says, are too depressed—even with the AI threat looming. He's not dismissing the risk, but he figures the fear has already been priced in, and then some.
ServiceNow shares are down roughly 30% from their 2025 highs. Salesforce hasn't fared much better, sliding 25% as the narrative shifted from 'must-have CRM' to 'legacy dinosaur.' The AI revolution was supposed to eat their lunch. But DiFucci asks: what if the revolution doesn't show up on time?
The Numbers Don't Lie—Yet
Let's look at the data. ServiceNow trades at about 40 times forward earnings—steep by any measure, but down from 60 times a year ago. Salesforce goes for 25 times, a discount to its five-year average of 35. Those multiples suggest investors are pricing in a worst-case scenario: a permanent hit to growth from AI alternatives.
But here's the thing: AI isn't replacing enterprise software tomorrow. Or next quarter. The big AI models are impressive demos, but turning them into reliable, secure, integrated business tools takes years. Companies like ServiceNow and Salesforce aren't just sitting still—they're layering AI into their own products. ServiceNow's Now AI platform and Salesforce's Einstein GPT are real offerings, not vaporware.
“The Armageddon scenario is too extreme,” DiFucci said. “The threat is real, but the timeline is being compressed by fear, not facts.”
He's right. The market is notoriously impatient. When a new technology emerges, it takes time for the disruption to play out. Meanwhile, incumbents often adapt faster than the narrative suggests. Microsoft didn't die when Google Docs appeared. Oracle is still around despite AWS. The death of enterprise software has been greatly exaggerated.
What About the AI Threat?
Let's not kid ourselves. AI is a threat. If a company can generate code, automate workflows, and analyze data with a simple prompt, why pay six figures for a ServiceNow license? That's the bear case. But it misses two things.
First, integration. Enterprise software is sticky because it's embedded in every process, connected to legacy systems, and governed by compliance rules. A chatbot can't replace that overnight. Second, trust. CFOs don't hand the keys to an AI without audit trails and SLAs. ServiceNow and Salesforce provide accountability. Until AI models can sign contracts and get sued, incumbents have a moat.
Second, the incumbents are adding AI features faster than startups can ship products. ServiceNow's Now AI already automates IT ticketing and HR queries. Salesforce's Einstein offers predictive sales scoring. These aren't afterthoughts—they're core to the product roadmap. If anything, the AI craze could drive more demand for platforms that can orchestrate multiple AI tools.
The Ugly Truth About Valuations
Here's where DiFucci's argument gets teeth. When fear peaks, valuations get crushed. But that's exactly when you want to buy—if the underlying business is still growing. ServiceNow grew revenue 23% last year. Salesforce clocked 11%. Both generate robust free cash flow. This isn't a zombie industry.
Compare that to the doom-scenario multiples. ServiceNow at 8x sales? That's cheap for a company with 20%+ growth and 30% margins. Salesforce at 5x sales? That's a steal for a cash machine buying back stock. The risk/reward tilts toward upside.
Of course, there's a catch. If AI replaces entire workflows, these companies could decelerate faster than expected. But that's a 2028 problem, not a 2026 one. The market is pricing in a catastrophe that hasn't happened yet. That's usually a mistake.
What to Watch Now
For investors, the next six months matter. Earnings calls will be scrutinized for AI adoption metrics. If ServiceNow and Salesforce show accelerating subscription growth, the bears will retreat. If they miss, the sell-off could deepen. But at current prices, the odds favor a rebound.
DiFucci's call isn't a home run guarantee. It's a bet that the fear has overshot. In a market that hates software stocks, that's a contrarian move worth examining.
Don't let Armageddon scare you into missing a buying opportunity.
