1. ServiceNow, Inc. (NYSE:NOW)
ServiceNow, Inc. (NYSE:NOW) was among Jim Cramer’s latest stock calls, as he suggested investors balance portfolios with hot and cold stocks. The company was mentioned during the episode of Mad Money, as Cramer said:
Last night, we had Bill McDermott, CEO of ServiceNow, on the show. Reported a perfectly good quarter, one that passed the August rule of 50, revenue growth rate plus profit margin equals more than 50. Very good sign for a cloud software play. There were huge signups. Many clients embraced their AI controller model, letting them automate their workflows and more. But here’s the problem: In an era where artificial intelligence can mimic very good software businesses, it’s hard for ServiceNow’s stock to get a decent valuation. Too many on Wall Street are terrified that this kind of company has no future. Hence, today’s staggering 17% decline for this stock.
ServiceNow, this stock is now down a ghastly 44% for the year, 44%. Plus, even though ServiceNow stock has already been pummeled, that doesn’t necessarily mean it’s gotten cheap. As Ben Reitzes at Melius tells us, lots of their employees get stock as compensation. If you were to treat that as real cash compensation, as you and I might, then even after today’s dramatic fall, $103 to $84 and change, stock sells at 37 times earnings, much more expensive than most of the S&P. Now, I’ve gone over everything that McDermott told us about half a dozen times.
Here’s my conclusion: ServiceNow’s doing exactly what it’s done for years, but it’s no longer going to be given that same price-to-earnings multiple because artificial intelligence is cheaper. And even if it doesn’t wipe them out, it could put pressure on pricing, and you don’t get a premium multiple if your company’s pricing is under pressure. The market’s changed. The buyers turned into sellers. Doesn’t mean ServiceNow isn’t a great company, it is. But institutional money managers who determine the prices that you see won’t pay up as much for that kind of greatness when it’s an enterprise software vulnerable to the great disruptors we talk about all the time.
ServiceNow, Inc. (NYSE:NOW) provides a cloud platform that supports digital workflows through AI, automation, low-code tools, analytics, and a suite of IT, security, customer service, and employee experience products.
While we acknowledge the potential of NOW to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than NOW and that has 100x upside potential, check out our report about the cheapest AI stock.
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