ServiceNow and Salesforce shares look like buys as Armageddon fears overdone, analyst says

A Guggenheim analyst has upgraded ServiceNow (NOW) and Salesforce (CRM) to buy, stating that the market's Armageddon fears regarding artificial intelligence disruption are overblown and have pushed valuations to attractive levels. The analyst notes that the earnings yield on these stocks now compares favorably to the 10-year Treasury yield, a key tenet of the Fed model, suggesting they are undervalued relative to bonds. ServiceNow's forward P/E has compressed to around 50x from over 60x, while Salesforce's forward P/E has fallen to roughly 25x, both below their five-year averages. The analyst believes that current levels offer a buying opportunity for those willing to look past near-term uncertainty, as the sell-off has been excessive relative to the actual AI threat.

For equities traders, this call highlights a potential contrarian play in the software sector, where sentiment has turned overly bearish. Breadth indicators show that the percentage of software stocks trading above their 50-day moving average has dropped to levels seen during prior market troughs, signaling widespread pessimism. Sector rotation data indicates money flowing out of tech and into defensive sectors, but the analyst argues this creates a buying opportunity in high-quality names like ServiceNow and Salesforce. Additionally, both companies have strong buyback yields—ServiceNow at roughly 1.5% and Salesforce near 2.5%—which can support share prices during downturns. Options-implied volatility remains elevated, with the VIX above 20, but the analyst sees this as a sign of excessive fear rather than fundamental risk. NowPrice's real-time stock quotes show the latest prices for ServiceNow and Salesforce, allowing traders to monitor entry points.

Looking ahead, traders should watch for any further analyst upgrades or downgrades in the software space, as well as earnings reports from ServiceNow and Salesforce later this year. Key levels to monitor include support and resistance zones around recent lows—ServiceNow near $600 and Salesforce near $200. If the broader market stabilizes and breadth improves, these stocks could see a rebound as valuation concerns ease. The analyst also advises monitoring the 10-year Treasury yield, as a decline would further boost the relative appeal of equities. For now, the call suggests that the worst of the sell-off may be over, but traders should remain cautious given the elevated volatility.