By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel consensus leans bearish on ServiceNow (NOW) due to its high valuation (67x earnings) and reliance on AI adoption and high-ticket deals. While its usage-based revenue model provides some insulation, it also increases macro sensitivity. The key risk is the fragility of its premium multiple in a downturn or if AI adoption slows. Salesforce (CRM), with a cheaper multiple and potential upside from Informatica and Slack, is seen as a more forgiving risk/reward proposition.
Risk: The fragility of ServiceNow's premium multiple in a downturn or if AI adoption slows.
Opportunity: Salesforce's potential upside from Informatica and Slack integration.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
ServiceNow's revenue is growing considerably faster than Salesforce's.
Salesforce trades at a far lower valuation than ServiceNow.
One company's business model looks better equipped for the AI era.
Software stocks spent the first part of 2026 among the market's weakest names. Investors worried that artificial intelligence (AI) agents would chip away at the per-seat licensing model on which much of enterprise software is built, and the selling was severe. The group, however, has since stabilized. May was the sector's best month in more than two decades. Though shares pulled back again over the past week, leaving much of the year's earlier damage in place.
That sets up a useful comparison between two enterprise software leaders. Salesforce (NYSE: CRM) brought customer relationship management (CRM) to the cloud and is now pushing hard into AI agents through its Agentforce platform. And ServiceNow (NYSE: NOW) automates the digital workflows that move work through large organizations, from IT support to security response.
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Both are down meaningfully in 2026. But which is the better buy?
Salesforce's fiscal first quarter of 2027 (the period ended April 30, 2026) was solid. Revenue rose 13% year over year to $11.1 billion, an acceleration from the 9% growth it reported two quarters earlier, though some of that lift came from its roughly $8 billion acquisition of data-management company Informatica. Subscription and support revenue, the recurring core of the business, grew 14%, and the company's non-GAAP (adjusted) operating margin expanded to 34.8% from 32.3%.
Importantly, the AI story is starting to show up in the numbers. Salesforce said annual recurring revenue from Agentforce, its suite of AI agents, surpassed $1 billion for the first time, up 205% year over year.
And its messaging service, Slack, is increasingly part of the bull case for the stock, too.
"Slack was nearly half of our million-plus wins this quarter, up 80% year-over-year," chief executive officer Marc Benioff said during the company's fiscal first-quarterearnings call
Still, for the full fiscal year, Salesforce guided for revenue of roughly $45.9 billion to $46.2 billion, about 11% growth -- and only around 8 percentage points of that is organic, with Informatica supplying the rest.
The stock is down about 30% year to date as of this writing, and that decline has reset the valuation. Salesforce now trades at a price-to-earnings ratio of about 22 -- a reasonable valuation.
ServiceNow is growing far faster.
In the first quarter of 2026, both subscription revenue and total revenue rose 22% year over year, to $3.67 billion and $3.77 billion, respectively -- an acceleration from about 21% subscription growth in the prior quarter.
ServiceNow charges, in part, based on how much its platform is used rather than solely on seat counts, and demand for its AI tools is growing rapidly, helping its business inflect.
With Now Assist, its generative AI offering, the number of customers spending $1 million or more annually grew by more than 130% year over year.
And management raised its AI ambitions on the company's first-quarterearnings call with chief executive officer Bill McDermott saying of the prior $1 billion AI target, "We're already talking about $1.5 billion now, and it's on a run."
ServiceNow chief financial officer Gina Mastantuono added that customers are "moving past experimentation into full-scale, enterprisewide AI investment."
ServiceNow, like Salesforce, also turns revenue into cash at an impressive clip. ServiceNow's free cash flow in the quarter was about $1.67 billion -- a 44% free cash flow margin.
The catch, however, is the price.
After a 5-for-1 stock split late last year, ServiceNow shares trade around $112 as of this writing. That gives the stock a price-to-earnings ratio of about 67 -- more than triple Salesforce's.
Sure, the stock is down about 27% in 2026. And it fell particularly hard over the past week. But shares carry a premium that leaves little room for error.
So, which is the better buy?
To me, ServiceNow looks like the more attractive investment, even with its richer valuation. It's growing much faster than Salesforce, with growth accelerating rather than slowing, and it converts a large share of revenue into free cash flow. Just as important, a meaningful portion of that revenue scales with how much work runs through its platform rather than just the number of employees logging in -- a model that may hold up better in a world of AI agents than the seat-based approach that has weighed on the group this year.
Of course, none of this makes Salesforce a bad stock. Its valuation is far more forgiving, and a return to faster organic growth could make today's price a bargain. But ServiceNow's premium, while a risk worth respecting after this year's volatility, buys a stronger business -- making it both the better company and, despite the higher price tag, arguably the better investment.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Salesforce and ServiceNow. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"NOW’s valuation leaves little cushion for error—any growth or margin miss could trigger meaningful downside."
While the article elevates NOW on faster growth and cash flow, the bear case matters: NOW trades around 67x earnings after the 5-for-1 split, leaving little room for error if AI adoption slows or macro softness hits large deals. Growth hinges on multi-year AI-driven upsell and consumption-based usage, which can disappoint if customers push back on ROI or governance. Salesforce, with a ~22x multiple and meaningful upside from Informatica, Slack integration, and potential organic acceleration, offers a more forgiving risk/reward and a cheaper path to re-rating if AI monetization accelerates. In risk terms, NOW’s premium looks fragile in a choppier AI funding cycle.
Nevertheless, the strongest counterpoint is that NOW’s AI momentum could prove durable enough to justify a premium; if AI budgets stay intact and large deals close, the stock could sustain or expand its multiple, making Salesforce look like the riskier bet in the long run.
"Both companies face a fundamental paradox where their AI-driven product success directly threatens the seat-based and usage-based billing models that currently sustain their high margins."
The article sets up a classic growth-at-any-price vs. value trap debate, but misses the structural risk inherent in both: the 'AI agent' cannibalization of seat-based licensing. While ServiceNow’s workflow-based model is more resilient, a 67x P/E multiple is dangerously fragile if enterprise IT budgets tighten further in late 2026. Salesforce’s pivot to Agentforce is a necessary defense, but at 22x P/E, it is effectively pricing in stagnation. I am neutral on both because the market is currently mispricing the transition cost of AI integration. Investors are ignoring that 'full-scale, enterprise-wide AI' often leads to headcount reduction—the very thing that fuels these companies' revenue models.
If enterprise AI adoption triggers a massive productivity boom rather than simple headcount reduction, both companies will see unprecedented expansion in their total addressable markets, making current high valuations look like entry-level bargains.
"ServiceNow's 67x P/E leaves scant room for the AI growth acceleration to fall short of the raised $1.5B target."
The article rightly flags ServiceNow's 22% revenue growth and usage-based model as advantages over Salesforce's 13% pace and seat-heavy licensing, yet it glosses over how NOW's 67x P/E (versus CRM's 22x) prices in near-perfect AI execution. Salesforce's $8B Informatica deal and Slack momentum could lift organic growth above the guided 8% faster than expected, while both names face the same 2026 AI-agent overhang that already cut the sector 30%. NOW's $1.5B AI target remains unproven at scale and could face margin pressure if customers demand steeper discounts.
ServiceNow's 44% free cash flow margin and 130%+ jump in $1M+ AI customers could sustain the premium if enterprise AI budgets keep expanding, making the valuation gap to Salesforce appear justified rather than excessive.
"ServiceNow's valuation premium is defensible only if AI-driven usage acceleration sustains 20%+ growth through 2027; any deceleration to 15% makes it materially overpriced relative to CRM at 22x."
The article's NOW bull case rests on three pillars: 22% growth, usage-based pricing insulating it from AI agent disruption, and a 44% FCF margin. But there's a critical gap: ServiceNow's $1.5B AI revenue target (from a $3.77B base) means AI is still ~40% of total growth. If that inflection stalls—if customers move past 'experimentation' but don't scale—the 67x P/E becomes a guillotine. Salesforce's 13% growth looks pedestrian until you isolate organic (8%), but Agentforce hitting $1B ARR with 205% YoY growth is real traction. The article treats valuation as 'a risk worth respecting' but doesn't quantify what multiple compression looks like if NOW's growth normalizes to 15-18% in 2027.
ServiceNow's usage-based model is theoretically AI-resistant, but that assumes customers actually *use* AI agents at scale rather than pilot them indefinitely—and a 67x multiple leaves zero room for execution risk or macro slowdown.
"NOW's AI-driven, usage-based revenue makes it highly cyclical; a 67x P/E assumes uninterrupted expansion, any macro slowdown or softer AI uptake will likely trigger sharper multiple compression than CRM."
NOW's premium relies on AI adoption staying broad and high-ticket deals closing; but usage-based revenue means demand dips with budgets, not just deals, heightening macro sensitivity. Gemini's neutral stance misses how elastic NOW's ARR can be if customers throttle usage in a downturn—core risk isn't cannibalization but revenue volatility. If Informatica/Slack gains don't translate into durable usage, a 67x multiple looks even more fragile than CRM's multiple suggests.
"The shift to AI agents will commoditize platform workflows, forcing a price war that threatens the high margins of both ServiceNow and Salesforce."
Gemini’s focus on headcount reduction as a threat to SaaS revenue models ignores the 'agent-as-a-worker' paradigm shift. If AI agents act as seats, ServiceNow and Salesforce will simply shift from charging per human to charging per agent. The real risk isn't revenue loss from headcount cuts, but the commoditization of the underlying workflow. If AI agents become interoperable across platforms, the moat for both ServiceNow’s workflows and Salesforce’s CRM data will evaporate, leading to a permanent margin-crushing price war.
"ServiceNow's usage-based model provides insulation against the agent interoperability price war Gemini describes, unlike seat-based models."
Gemini's commoditization warning assumes agents will erode both moats equally, but ServiceNow's consumption model ties revenue directly to workflow volume rather than seats, creating a buffer against price wars that Salesforce lacks. If interoperability accelerates, NOW could capture more agent-driven usage across ecosystems, sustaining its premium even as CRM faces data commoditization. This dynamic flips the relative risk between the two names.
"Consumption-based pricing is a liability, not a hedge, if agent-driven workflows commoditize and customers optimize for cost per action."
Grok's consumption-model buffer assumes NOW retains pricing power if agents proliferate—but that's backwards. If workflows become agent-driven, customers pay per agent-action, not per seat. That's *lower* revenue per unit of work, not higher. ServiceNow's 44% FCF margin compresses hard if agent-driven usage scales without corresponding price increases. Interoperability doesn't help NOW capture more usage; it means customers optimize to cheapest provider per workflow. The moat erodes identically for both.
The panel consensus leans bearish on ServiceNow (NOW) due to its high valuation (67x earnings) and reliance on AI adoption and high-ticket deals. While its usage-based revenue model provides some insulation, it also increases macro sensitivity. The key risk is the fragility of its premium multiple in a downturn or if AI adoption slows. Salesforce (CRM), with a cheaper multiple and potential upside from Informatica and Slack, is seen as a more forgiving risk/reward proposition.
Salesforce's potential upside from Informatica and Slack integration.
The fragility of ServiceNow's premium multiple in a downturn or if AI adoption slows.