While artificial intelligence (AI) stocks continue to be market darlings, the same can’t be said for software stocks. Software-as-a-service (SaaS) stocks have been absolutely hammered this year, and there doesn’t appear to be any let-up.
While many SaaS companies continue to put up solid revenue growth, few outside of Palantir have seen their growth accelerate due to AI tailwinds, as many of their customers try to navigate what AI means to their own businesses and what their roadmaps should look like. Stagnant or decelerating revenue growth, meanwhile, has helped fuel the bear argument that the software sector is ultimately an AI loser.
The bears believe Claude Code and similar agentic AI coding tools will allow organizations to easily create their own custom software. Meanwhile, they believe AI agents will eventually start to replace workers, noting that AI agents don’t care about user interfaces (UIs), which helps erode the software moat. Even if this doesn’t play out, at the very least, they think AI will lead to companies needing fewer software seat licenses.
Image source: Getty Images.
The counter argument is that while AI is fast at generating code, it often isn’t good at maintaining it. In a study done by Alibaba, the Chinese company found that 75% of code created by AI models failed in less than a year as they would sacrifice quality in favor of speed. Meanwhile, Claude Code has actually gotten worse after its release, with several customers publicly venting how security issues were popping up and how it could not be trusted.
While SaaS companies that are simple UI wrappers are likely vulnerable to AI, the ones that sit at the center of their customers’ data and workflow are much better positioned and likely to survive. Organizations generally don’t want to take on the added responsibility and risks of their software failing or an AI agent going rogue and causing damage. There is still comfort in having a software vendor maintain the stability and safety of their core software systems. Meanwhile, as AI agents do become more prevalent, the old seat-based pricing models will likely evolve into usage or hybrid seat and consumption models.
Let’s look at two SaaS stocks that sit at the center of their customers’ data that have strong upside potential.
ServiceNow: 85% upside
Today’s Change
(6.25%) $5.30
Current Price
$90.08
Key Data Points
Market Cap
$94B
Day’s Range
$84.97 – $90.39
52wk Range
$81.24 – $211.48
Volume
1.6M
Avg Vol
23M
Gross Margin
76.56%
While its recent stock performance may not indicate it, ServiceNow (NOW +6.25%) is one of the best-positioned SaaS companies in the AI era. The company’s configuration management database (CMDB) is generally the heart of its customers’ technical infrastructure, and it is the orchestration tool and plumbing for their whole software stack. It’s deeply embedded into its customers’ workflow and data, and is an invaluable systems of record grounded in security permissions, custom business logic, and audit trails.
The company is still growing quickly, with revenue growth around 20%, and it has the potential to be a major player as an agentic AI orchestration platform with its new AI Control Tower solution. Put a 10 times price-to-sales (P/S) multiple on the stock, which is appropriate given its growth, and the stock would be $160, representing more than 85% upside.
Salesforce: 70% upside
Today’s Change
(2.88%) $5.00
Current Price
$178.29
Key Data Points
Market Cap
$164B
Day’s Range
$174.43 – $178.44
52wk Range
$163.52 – $296.05
Volume
490K
Avg Vol
14M
Gross Margin
75.28%
Dividend Yield
0.95%
One of the most proactive companies in the SaaS space to position itself for the age of agentic AI has been Salesforce (CRM +2.88%). Long a leader in breaking down data siloes between departments and being a core customer relationship management platform, the company has transformed itself to become the master of records for its customers’ data. This is huge in and of itself when it comes to agentic AI, as AI agents need clean, structured data to pull from to avoid hallucinations.
Salesforce’s introduction of its Data 360 solution brought with it zero-copy technology that can capture data from data warehouses and cloud providers without the time-consuming and expensive process of transferring it. The company then acquired Informatica to cleanse, structure, and govern all this data, making it the perfect agentic AI launch platform. The company had projected it can grow its revenue at a compound annual growth rate of about 11% through fiscal 2030.
Place a six times P/S multiple on the stock given its revenue growth outlook, and it would be a $300 stock, representing 70% upside.
