Software Stocks Are Cheaper Than Ever -- 2 to Buy Right Now

Software stocks are trading at a historic relative valuation discount, with the sector now at a forward P/E below the broader market, creating a more favorable risk/reward setup. The article highlights Salesforce and ServiceNow as attractively priced AI beneficiaries: Salesforce trades at 13x forward earnings with $46 billion 2027 revenue guidance and $50 billion of buybacks, while ServiceNow trades at 21x forward earnings with 20% constant-currency 2026 revenue growth guidance and 32% operating margin target. The piece argues AI is more of a tailwind than a threat for these businesses, though investor sentiment remains cautious.

Analysis

The market is likely pricing a binary outcome that is too crude for enterprise software: AI does not have to destroy pricing power for the sector to underperform if it merely slows new-logo growth and lengthens deal cycles. The bigger second-order effect is that AI adoption can actually expand the addressable budget for workflow, data, and governance layers, while commoditizing only the thin application veneer. That argues the winners will be the platforms sitting closest to workflow ownership and control points, not the point solutions that depend on isolated seat expansion.

CRM looks more mispriced on medium-term compounding than NOW because the path to upside is less dependent on perfect execution. The combination of repurchases and margin expansion creates a floor under EPS even if top-line growth stays in the low double digits, and the market is underestimating how AI can improve monetization per customer without requiring a dramatic re-acceleration in logos. The key tell over the next 1-2 quarters will be whether AI attach rates start lifting gross retention and expansion sales rather than simply boosting headlines.

NOW is the higher-quality asset but also the more fragile one in the near term because expectations embed a clean re-acceleration that may not arrive until integrations digest and customers standardize on agent orchestration. The contrarian point is that this is precisely the type of infrastructure layer that becomes more valuable as AI proliferates: enterprises do not want multiple agent stacks, they want one governance plane, one workflow layer, and one bill. If that thesis is right, current multiples are discounting a cyclical slowdown as if it were a structural exodus, which is too bearish over a 12-24 month horizon.

Key Decisions for Investors

• Long CRM on 6-12 month horizon; accumulate on any post-earnings weakness. Risk/reward favors a rerating if buybacks support EPS and AI-related attach keeps scaling faster than the core business slows.
• Hold/trim NOW into strength rather than chase; wait for evidence that organic growth can re-accelerate before adding. Use a 1-2 quarter catalyst window: if that proof does not emerge, multiple expansion will likely lag.
• Pair trade: long CRM / short a basket of lower-quality SaaS names with weaker retention and less pricing power over 3-6 months. The market is likely too indiscriminate in compressing multiples across the sector.
• For aggressive accounts, buy medium-dated call spreads in NOW ahead of the next guide cycle. The setup is asymmetric if management simply proves AI monetization is not dilutive to core growth, but downside is meaningful if integration drag persists.
• Avoid shorting CRM outright unless revenue growth rolls over below low double digits; buyback support and margin leverage make the bear case difficult to sustain beyond a few quarters.