ServiceNow (NYSE: NOW) shares climbed approximately 5% on Wednesday after Guggenheim Securities upgraded the enterprise software company, arguing that its current valuation presents a compelling entry point for investors even as artificial intelligence continues to pose structural risks to the sector.
The upgrade comes amid a challenging period for enterprise software stocks, with ServiceNow shares down roughly 33% year-to-date in 2026. The broader sell-off reflects investor reassessment of growth prospects as AI reshapes competitive dynamics across the industry. Similarly, Salesforce (NYSE: CRM) also gained about 5% on the day after receiving an upgrade from the same analyst.
Guggenheim's Bullish Call on Valuation
Guggenheim analyst John DiFucci upgraded ServiceNow to Buy from Neutral, setting a price target of $125. That valuation equates to approximately 7.5 times enterprise value to next-12-month recurring revenue. DiFucci emphasized that the upgrade is driven by valuation rather than a belief that ServiceNow will emerge as a major AI beneficiary.
“We believe current levels present an attractive opportunity for investors to purchase a comfortably profitable stock likely to continue to grow at double digits,” DiFucci wrote in a note to clients. He pointed to expected improvements in ServiceNow's U.S. federal government business, which has faced headwinds from spending changes and procurement delays tied to the Department of Government Efficiency. Management discussions suggest these disruptions may begin to ease, providing a potential catalyst for growth.
DiFucci also upgraded Salesforce to Buy from Neutral, describing the current valuation as “grossly undervalued” at roughly 3.7 times projected enterprise value to revenue over the next 12 months. He characterized the market's pessimism as an “Armageddon scenario” that is “misaligned with reality.”
AI Remains a Risk, Not a Growth Driver
Despite the upgrades, DiFucci maintained a cautious stance on artificial intelligence. He has previously flagged AI as a major threat to traditional software companies and noted that his view has not materially changed. “We want to be clear that we are not upgrading shares because we see [ServiceNow] as an AI beneficiary,” he stated, adding that AI monetization is “unlikely to materialize” for the company and that the technology “does pose significant risks.”
For Salesforce, DiFucci tempered growth expectations, saying the company will “struggle to grow much, but does not decline much either.” He emphasized that the upgrade is not a bet on AI-driven expansion but rather a recognition that the current valuation already prices in excessive downside. Ongoing risks include talent migration to AI-native startups and Salesforce's reliance on acquisitions, such as Armis, to sustain growth.
Investors Focus on Near-Term Execution
Separately, Evercore ISI reiterated its Outperform rating on ServiceNow with a $150 price target ahead of the company's second-quarter earnings report. The brokerage noted that investor attention has shifted from long-term AI strategy toward execution over the coming quarters.
ServiceNow recently outlined its AI Control Tower strategy, AI-native product packaging, and a long-term target of generating more than $30 billion in subscription revenue by fiscal 2030. Evercore ISI estimates that this implies a subscription revenue compound annual growth rate of approximately 17.5% without requiring an acceleration in growth.
For the second quarter, ServiceNow guided current remaining performance obligations (cRPO) growth of about 19.5% in constant currency, including contributions from the Moveworks and Armis acquisitions. Evercore ISI said investors will closely monitor whether organic growth stabilizes as federal market pressures ease and AI adoption increases. Constant-currency growth of 20% to 20.5% would likely meet expectations, while results closer to 21% or higher could help alleviate concerns about slowing organic momentum.
The broader software sector has faced headwinds as AI-driven shifts reshape investor sentiment. For context, SanDisk Plunges 14% as AI Hardware Rotation Hits Memory Stocks Despite Analyst Upgrades and Tesla Stock Drops 3% Despite Record Deliveries: Profit-Taking and AI Focus Weigh highlight the ongoing rotation in AI-related plays. Meanwhile, Palantir Stock Rallies on Buy Upgrade, AI Orchestration Edge and Nvidia Deal shows that some companies are still finding favor with investors amid the AI narrative.
This article is for informational purposes only and does not constitute financial advice.
