The rapid rise of AI hyperscalers has shaken confidence across the enterprise software landscape, raising fears that traditional platforms could be disrupted or commoditized as generative AI becomes more powerful and widely accessible. In recent months, those concerns have weighed heavily on software stocks, causing sharp pullbacks even among companies with long histories of growth, sticky customers and recurring revenue models. For many investors, the question has shifted from how fast these companies can grow to whether they can remain relevant in a world dominated by AI.
Wall Street analysts, however, are rejecting the more bearish narratives. For example, BNP Paribas argues that some enterprise software leaders are much more resilient than the market gives them credit for. “We view our January survey results as a warning for the software sector, reinforcing recent negative sentiment,” BNP Paribas analyst Stefan Slowinski said in a note. “Hyperscalers remain winners with relatively resilient spending scores reported for Microsoft, AWS and GCP, and growing public cloud demand. SAP and ServiceNow stood out positively with improving demand.”
In this article, we’ll take a closer look at two “resilient” software stocks highlighted by BNP Paribas: ServiceNow (NOW) and SAP SE (SAP).
ServiceNow is a leading provider of cloud-based digital workflow solutions. The company operates the ServiceNow AI platform, which integrates with any cloud, model or data source to orchestrate workflows across the enterprise. It offers a broad set of products in areas such as IT service management, customer service management, operational technology management and security operations. ServiceNow’s customer base includes more than 85% of the Fortune 500 and nearly 60% of the Global 2000. It has a market capitalization of $138.1 billion.
Shares of the enterprise software company started the new year on a downbeat note, down 12% year-to-date (YTD), extending a decline that has hurt the stock through 2025 amid concerns that AI could devastate its business model.
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Despite describing ServiceNow as a “resilient” software company, BNP Paribas Exane’s Slowinski lowered his price target on the stock to $120 from $186, implying a modest downside from current levels, while maintaining a “Neutral” rating.
ServiceNow stock has seen a sharp decline in recent months as investors continue to worry about potential disruptions from AI-focused competitors. The selloff intensified this month after Anthropic introduced Claude Cowork, a tool built to tackle complex tasks like coding, business workflows, and advanced reasoning. Some analysts believe some of ServiceNow’s offerings could be disrupted as AI models continue to advance.
Despite fears of AI-driven disruption, the company’s latest earnings report indicated that the business continues to grow at a double-digit pace. ServiceNow reported third-quarter total revenue of $3.41 billion, up 21.8% year-over-year and beating Wall Street expectations by $50 million. Of that total, $3.3 billion came from subscriptions, a 21.5% increase from the previous year, driven primarily by increased purchases by new and existing customers. Its quarterly GAAP earnings came in at $2.40 per share, beating expectations by $0.20.
Meanwhile, ServiceNow’s current remaining performance obligations (cRPOs), revenue expected to be recognized over the next 12 months, totaled $11.35 billion in the third quarter, representing 21% year-over-year growth. The company also deepened its customer relationships, recording 103 deals exceeding $1 million in net new annual contract value (ACV) during the third quarter and ending the quarter with 553 customers with more than $5 million in ACV, an 18% year-over-year increase.
Looking ahead, ServiceNow raised its full-year guidance for subscription revenue, operating margin and free cash flow. The company said it now expects subscription revenue of $12.84 billion to $12.85 billion, up from its previous forecast of $12.78 billion to $12.8 billion.
Investors’ attention now turns to the company’s fourth-quarter results, which will be released Wednesday after the market closes. Analysts following the company expect its GAAP EPS to rise 23.08% year-over-year to $0.48 in the fourth quarter, while revenue is expected to rise 19.35% year-over-year to $3.53 billion. Oppenheimer said he sees a favorable earnings setup for ServiceNow in the fourth quarter, with solid performance and positive commentary versus moderate investor expectations.
It’s also worth noting that NOW stock’s recent pullback has made the company’s valuation more attractive, after years of trading at an incredible premium. The stock currently trades at a non-GAAP Forward P/E of 38.25 times, well below its five-year average of 67.56 times, although still above the industry median of 25.35 times.
Many Wall Street analysts disagree with investors’ concerns about AI disrupting ServiceNow’s business. Of the 42 analysts covering the stock, 33 recommend a “strong buy,” three suggest a “moderate buy,” five advise hold, and one assigns a “strong sell” rating. This translates to a top-tier “Strong Buy” consensus rating. The average price target for NOW shares is $212.88, indicating a 59.9% upside potential from Friday’s closing price.
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SAP SE is a Germany-based software corporation and a global leader in enterprise resource planning (ERP) software. The company specializes in software that centralizes data management, allowing companies to manage complex processes through a single “smart suite” on a digital platform. Its flagship product, SAP S/4HANA, uses in-memory computing and artificial intelligence to process large amounts of data in real time. Beyond ERP, SAP offers more than 100 solutions covering finance, human resources, supply chain, customer experience (CRM), and expense management. SAP’s market capitalization currently stands at $272.5 billion.
Like ServiceNow, shares of the enterprise software group have come under pressure from AI disruption risks, falling 2% year to date and 13% over the past 52 weeks.
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BNP Paribas Exane has an “Outperform” rating on SAP with a price target of €135 ($160). BNP Paribas’ positive sentiment points to strong confidence in SAP’s future performance and its strategic positioning in the enterprise software market.
Meanwhile, Jefferies recently reiterated its “Buy” rating on SAP and maintained a price target of €290 ($345). Jefferies analyst Charles Brennan said that although SAP is trading about 15% above previous low valuations, the stock still appears to be approaching a valuation low for a company that generates recurring revenue at about 15%. Confidence in software “has rarely been lower, and AI casts a shadow of uncertainty for the sector,” Brennan said in a note. Jefferies believes SAP is “a higher quality business now than at any time in the past.”
Last week, SAP shares fell to their lowest level since August 2024, bringing the market value loss from last year’s all-time high to about $130 billion. A bearish trend that lasted for months was driven by concerns about the disruptive potential of AI. More precisely, there are concerns that AI could make it easier to create and replicate existing software services, which could put pressure on the average selling price of services for companies like SAP.
In late October, SAP SE reported mixed third-quarter earnings results and offered a mixed outlook. The company’s total revenue grew 11% year-on-year at constant exchange rates to €9,076 million, slightly below expectations. At the same time, adjusted earnings per share reached 1.59 euros, exceeding the Wall Street consensus estimate of 1.49 euros and compared to 1.23 euros in the same quarter of the previous year.
Meanwhile, SAP’s cloud segment generated €5.29 billion in revenue in the third quarter, up 27% year over year on an adjusted basis. Analysts expected revenue of 5.33 billion euros. Notably, cloud revenue accounted for 58% of SAP’s total sales, up from 51% a year earlier. The company’s current cloud order book increased 27% year-on-year at constant exchange rates to €18.84 billion in the third quarter, maintaining the growth momentum seen in the second quarter. Investors have been closely watching SAP’s cloud sales since the company pivoted from selling traditional on-premise software licenses to subscription-based services. A subscription model allows software companies to generate more predictable cash flows. For SAP, this transition centers on its Cloud ERP Suite, the cloud-based version of the company’s core offering.
Looking ahead, the company said it expects cloud revenue in 2025 to be near the lower end of its range of €21.6 billion to €21.9 billion in constant currencies. At the same time, management said full-year adjusted profit is expected to be at the upper end of its forecast range of €10.3 billion to €10.6 billion.
Like ServiceNow, SAP SE will report its fourth-quarter results this week, with analysts forecasting adjusted EPS of $1.72, up 17.32% year-over-year, and revenue of $11.53 billion, up 17.88% year-over-year. Citi analysts said the company is expected to deliver strong fourth-quarter results and will likely reaffirm its outlook for accelerating revenue growth and margin expansion next year.
In terms of valuation, the stock is currently trading at a non-GAAP Forward P/E of 33.21 times, close to the industry median of 25.35 times and its five-year average of 28.99 times.
Wall Street analysts have a consensus rating of “Strong Buy” on SAP stock. Among the 27 analysts offering recommendations for the stock, 20 call for a ‘strong buy’, one suggests a ‘moderate buy’, five recommend a hold and one gives it a ‘strong sell’ rating. The average price target for SAP shares is $329.08, 42.4% above Friday’s closing price.
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At the time of this publication, Oleksandr Pylypenko had no (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
