While AI stocks are gaining traction in the market, the same can’t be said for software stocks, particularly in the Software-as-a-Service (SaaS) sector, which has been struggling this year without apparent signs of recovery.
Many SaaS firms are still reporting strong revenue increases, which is great. But, interestingly, there are only a few non-SaaS companies keeping pace. Companies like Palantir are benefiting from AI trends as businesses explore the implications of AI on their operations and future strategies. Conversely, the stagnation or decline in revenue growth is fueling skepticism about the software industry’s long-term prospects, with some believing it could be a casualty of the AI wave.
Critics argue that AI coding tools, like Claude Code, might allow firms to develop custom software more easily. However, there’s the looming idea that such AI agents could eventually displace human workers. After all, AI agents focus less on user interface (UI), which might undermine traditional software structures. Even if complete replacement doesn’t occur, it’s possible that AI will lead to a drop in the necessary software licenses for companies.
On the flip side, critics note that AI can quickly generate code but struggles with code maintenance. A study by a Chinese company, Alibaba, revealed that 75% of AI-generated code fails within a year because it prioritizes speed over quality. Moreover, Claude Code’s performance seems to have deteriorated since its launch, as some users have reported security issues and reliability concerns.
SaaS businesses that are primarily basic UI wrappers might find themselves at risk from AI advancements. In contrast, those that integrate deeply with customer data and workflows tend to be better positioned for success. Organizations generally prefer to avoid the added risk of software failures or potential AI misbehavior. There’s still comfort in knowing a software vendor is responsible for maintaining stable and secure core systems. As AI agents become more widespread, the old way of priced licenses might shift to a mixed usage model.
Now, let’s explore two SaaS stocks that are at the core of customer data and seem to have considerable growth potential.
ServiceNow: 85% increase
ServiceNow (now +6.36%) is among the SaaS companies that seem poised to thrive in the AI landscape, despite recent stock performance not necessarily reflecting that. Their configuration management database (CMDB) serves as the backbone of client technology infrastructures and is critical in orchestrating workflows. It’s also a stable system of record rooted in security, custom logic, and audit trails.
The company is experiencing substantial growth, with revenue up around 20%, and its new AI Control Tower solution could position it as a key player in AI orchestration. At a 10x price-to-sales (P/S) ratio—justifiable given its growth—the stock could reach $160, indicating an impressive potential increase of over 85%.
Salesforce: 70% increase
Salesforce (CRM +2.88%) is gearing up for the era of agent-based AI. Having spent years breaking down operational data silos and becoming an essential customer relationship management platform, Salesforce is now the go-to for customer data. This is particularly vital for agent AI since clean, structured data is crucial for functionality.
Salesforce is launching its Data 360 solution, which employs zero-copy technology to extract data from cloud providers and data warehouses efficiently. They also acquired Informatica to effectively manage and cleanse all this data, making it a prime launch platform for agent AI. Projections indicate that its revenue could grow at an average of 11% annually through the fiscal year 2030.
If we take the stock’s P/S increase to a 6x multiple based on its growth prospects, this could push the stock price up to $300, suggesting a potential upside of around 70%.
