Weakened by AI...Salesforce (CRM) and ServiceNow (NOW) 'Buy' Rating Conversion

▲ Salesforce (CRM), ServiceNow (NOW)/AI-generated image

ServiceNow (NOW) and Salesforce (CRM), which had been suppressed by the fear of artificial intelligence (AI), have been re-evaluated as buying opportunities after a sharp decline, putting Wall Street's sentiment towards software stocks at a crossroads once again.

According to investment specialized media MarketWatch on July 1 (local time), Guggenheim analyst John DiFucci raised his investment ratings for ServiceNow and Salesforce from Neutral to Buy, respectively. DiFucci maintained his existing view that AI poses a “significant threat” to software companies but stated that this threat is not a “death sentence” for the entire industry.

These two stocks are considered representative of the largest declines in the software sector this year. ServiceNow has fallen 33% since 2026, and Salesforce has dropped 38%. DiFucci explained that this upgrade is not based on the judgment that the two companies are clear beneficiaries in the AI era, but rather on the assessment that their stock prices have become excessively low after the sharp decline.

For ServiceNow, the potential recovery of demand in the U.S. government sector was presented as a key rationale. Based on conversations with management, DiFucci saw the possibility of improved trends in the U.S. government sector as the impact of procurement delays and organizational restructuring due to adjustments related to federal spending eases. However, he noted, “I did not raise the investment rating because I see ServiceNow as an AI beneficiary,” pointing out that AI monetization is unlikely to be immediately visible and related risks are significant.

For Salesforce, he concluded that the worst-case scenario reflected in the stock price does not align with reality. DiFucci assessed Salesforce as "extremely undervalued," trading at 3.7 times its enterprise value to estimated revenue for the next 12 months. He analyzed that even if the company finds it difficult to achieve significant growth, it is unlikely to experience the kind of collapse implied by its current stock price.

Market reaction was immediate following the rating upgrade. Salesforce stock rose 4.2% on Wednesday, and ServiceNow gained 6.6%. While concerns persist that AI could disrupt the business models of traditional software companies, the analysis suggesting that excessive fear was already priced into the stock has led to renewed hopes for a rebound in software stocks.

[Key Summary of Article]

-Guggenheim analyst John DiFucci upgraded investment ratings for ServiceNow and Salesforce from Neutral to Buy.

-ServiceNow and Salesforce were directly hit by the AI-driven sell-off in software stocks, falling 33% and 38% respectively since 2026.

-DiFucci believes AI risks are real but judged that the worst-case scenario currently reflected in the stock prices is excessive.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*