Stockbroker bullish on Salesforce and ServiceNow with "software Armageddon" trade said to be overdone

Wedbush says the recent sell-off in enterprise software names has overshot reality and added Salesforce and ServiceNow back to its IVES AI 30 list while removing Roblox and Baidu, arguing both are core participants in the AI revolution. The note highlights Salesforce’s >150,000 customers (including over 90% of the Fortune 500) and ServiceNow’s push with an end-to-end “Agentic AI‑first” platform, cites ~80% of CIOs focused on AI, and forecasts AI spend momentum into 2026 with ~$650bn of Big Tech capex—positioning both stocks as beneficiaries of rising AI investment rather than casualties of a structural SaaS decline.

Analysis

Contrarian angles: The market likely underestimates upsell/ARPU upside from embedded agentic AI — even conservative monetization (1–3% incremental ARPU p.a.) materially lifts cashflows for CRM/NOW. The sell‑off appears overdone if consensus assumes >20% secular seat revenue loss in 24 months; historical parallels (post‑2018 cloud pullbacks) show 6–18 month recoveries once product‑led monetization proves sticky. Unintended consequences: rapid AI rollout may accelerate vendor consolidation and premium valuation for platform leaders, but watch a single quarter where CRM/NOW miss guidance by >3ppt margin or revenue growth — that should trigger a re‑assess within 30 days.

Key Decisions for Investors

• Establish a scale‑in long position in CRM and NOW totaling 2–3% of portfolio over the next 2–6 weeks (e.g., 1.0–1.5% CRM, 1.0–1.5% NOW), target 6–12 month holding period to capture AI monetization and re‑rating.
• Buy 6–9 month call spreads on CRM and NOW (10–20% OTM, net debit sized 0.75–1.0% portfolio each) to express asymmetric upside; exit or roll if spread value doubles or implied volatility falls >30%.
• Initiate a pair trade: long CRM 1.5% vs short RBLX 1.0% to exploit relative durability of enterprise SaaS vs consumer gaming; close within 3 months or if relative performance diverges >15% against the spread.
• Hedge downside: purchase 3‑month puts 7–10% OTM sized to cap max loss at ~10% on new CRM/NOW equity exposure, or alternatively implement a 12–15% mechanical stop‑loss. Reallocate 2–4% from consumer/gaming into cloud infra (MSFT/AMZN) over 1–3 months.
• Triggers to reassess: downgrade positions if CRM or NOW report guidance misses >3 percentage points on revenue or if CIO survey signals >30% drop in AI capex intent over next 6 months; conversely, add if enterprise AI spend metrics beat by >10%.