ServiceNow Inc (NYSE:NOW) is down roughly 28% this year because investors are panicking about AI destroying SaaS. But Reddit value investors think this is exactly the setup Peter Lynch loved. Buy quality companies when fear crushes the stock. Hold while fundamentals stay solid. Wait for fear to fade. Then profit.
Despite market fears about AI, ServiceNow customers are not churning. They’re committing more money to multi-year deals despite AI budget pressure. The company’s security business has also crossed a $1 billion run-rate with 100% growth inflection. That matters because security is the last thing companies cut during a budget squeeze.
Jensen Huang from Nvidia singled out ServiceNow Inc (NYSE:NOW) by name. He said AI agents are tool-users and the tools that capture the work still get paid. That’s direct validation from the guy running the AI hardware show.
In Q1, revenue rose 22% year over year, despite a 75 basis point headwind from delayed deal closings amid Middle East conflict. For 2026, the company expects subscription revenue growth of about 20.5% to 21%. Backlog rose 23.5% to $27.7 billion. The company also raised its AI commitment expectation from $1 billion to $1.5 billion. On valuation, non-GAAP forward P/E sits at 25.5x, about 4% above the sector average. GAAP-basis P/E is high amid stock-based comp. A PEG ratio of 1x shows the stock trading about 25% cheaper than the sector average given its growth.
The company is scheduled to announce Q2 results later this week.
Burke Wealth Management stated the following regarding ServiceNow, Inc. (NYSE:NOW) in its Q1 2026 investor letter:
“ServiceNow, Inc. (NYSE:NOW): As a sector, enterprise software stocks peaked at the end of 2024, had a terrible 2025 and an even worse start to 2026. There has been very little distinction between single solution product companies and platform companies that orchestrate workflows across an entire enterprise. Valuations are at 10-year lows, and the prevailing viewpoint is that AI is going to obviate the need for legacy enterprise software subscriptions either by replacing existing software with vibe-coded solutions or by destroying the per seat business model that these companies were built on by eliminating the seats (human employees). Every time Anthropic releases a new set of tools, it seems….” (Click here to read the full text)
While we acknowledge the risk and potential of NOW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NOW and that has 10,000% upside potential, check out our report about the cheapest AI stock.
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