Guggenheim Upgrades Salesforce, ServiceNow to Buy on AI Fear Overdone

Guggenheim analyst John DiFucci upgraded both Salesforce (CRM) and ServiceNow (NOW) to Buy, signaling renewed optimism in the cloud software sector. DiFucci believes the AI disruption fear that hammered the sector over the past year has pushed valuations too low, creating a buying opportunity.

Rating Change

• Salesforce (CRM): From Neutral to Buy.
• ServiceNow (NOW): From Neutral to Buy.

No new price targets were disclosed in the report, but DiFucci noted that current valuations reflect excessive pessimism.

Analyst Rationale

DiFucci argues that fears of generative AI making existing software obsolete were overblown. Both companies, he says, have strong adaptive capabilities and can integrate AI into their products rather than be replaced by it. Their large customer bases and stable cash flows also support current valuations.

Context

The upgrade comes after a prolonged sell-off in software stocks due to AI concerns. Salesforce shares have fallen about 30% from their 52-week high, while ServiceNow is down roughly 25%. Other analysts, such as Jefferies, remain cautious, but Guggenheim's move may signal a shift in sentiment.

What to Make of It

Guggenheim's upgrade of Salesforce and ServiceNow to Buy reflects confidence in their ability to navigate the AI revolution. Investors may see value in the depressed valuations, but should monitor upcoming quarterly results to validate this view.