ServiceNow Just Figured Out a Way to Beat the AI "SaaS-Pocalypse," and It Could Make the Stock a Screaming Buy

One of the poster children of the current "SaaS-pocalypse" is enterprise software giant ServiceNow (NYSE: NOW).

ServiceNow's stock reacted poorly to its recent earnings report, even though, on the surface, the company's results looked good. That's because investors are extremely on edge over the impact of artificial intelligence (AI) on the software sector. Therefore, any report that looks less than "perfect" seems bound to be met with punishment.

That was certainly true of ServiceNow, which was already down tremendously from its highs, then fell another 18% the day after that earnings report. All in, the stock is down 52% over the past year and 62.4% from its all-time high, as of this writing.

However, buried within ServiceNow's quarter was a particular detail that showed investors how the company is evolving through its AI transition, which may enable it to continue growing strongly on the other side.

If that's the case, the stock could be a bargain.

How AI is bringing down even the top SaaS giants

ServiceNow's decline is all the more shocking, given the company's long-standing reputation as a deeply embedded "system of record" in large enterprises. Additionally, ServiceNow has generally maintained very strong growth as large enterprises use its platform to simplify and unify all of their various departments together, from IT to HR to sales, service, legal, and now, AI agents.

The strong growth even carried into the past quarter. Revenue increased 22%, while remaining contract obligations that customers have committed to but haven't yet been booked grew at 25%. Adjusted non-GAAP (generally accepted accounting principles) earnings per share grew a tad slower at 19.7%, however.

So what exactly is the concern, given these strong numbers?

The two overriding concerns with AI and software

The big risks investors see from AI in the software sector are multipronged. First, if companies become so much more efficient as they offload tasks to AI agents, these organizations will have fewer employees. That could mean software companies won't be able to sell as many "seats" (subscriptions) to large enterprises going forward.

Second, investors are worried about software companies keeping their margins. Because software is now much easier to create thanks to the capabilities of new AI coding agents, enterprises can more easily develop their own software. That could, at the very least, cause customers to demand lower pricing from ServiceNow going forward.

And even as software companies like ServiceNow embed large language models into their software offerings, they will have to pay the model maker for that service, whether it be Anthropic, OpenAI, or another model. The pricing and cost "squeeze" could therefore pressure margins.

Image source: Getty Images.

How ServiceNow is adapting to thrive in the age of AI

The good news for investors is that management under CEO Bill McDermott is taking concrete steps to adapt to the age of AI agents. In May 2025, ServiceNow unveiled its AI Control Tower, which enables enterprises to manage a fleet of AI agents, just as ServiceNow's traditional software allows companies to manage a fleet of employees.

Control Tower allows businesses to orchestrate, govern, and direct AI agents to complete jobs for the enterprise, all within the business's current strategy and strict governance protocols. The AI Control Tower seamlessly integrates with all major third-party models and runs across all clouds. That helps enterprises avoid the "lock-in" that comes with dependence on a single model or cloud vendor.

It's also encouraging that ServiceNow launched the AI Control Tower offering a year ago. That's well before AI agent usage exploded in the late summer and fall of 2025, when open-source agent OpenClaw hit the market, triggering an exponential step change in agentic AI growth. The fact that ServiceNow was well-prepared for the event shows it isn't sleeping on this transition and is "seeing around corners" of innovation, so to speak.

Additionally, ServiceNow is also adapting its subscription offering. On the first-quarter conference call with analysts, management noted that roughly 50% of new contracts were sold on a usage basis rather than a "seat-based" subscription.

If ServiceNow can charge based on the number of tasks completed or tokens used, somewhat like AI or cloud companies do, it should be able to sidestep the seat-based subscription pitfall and sustain its growth. After all, the amount of tasks agents can get done in a given time frame far outweighs what a human can, so token-based usage could explode going forward.

Could ServiceNow actually accelerate in the age of AI?

One can envision a future in which ServiceNow charges a small premium for AI Control Tower on a per-token basis. At the same time, token usage explodes, allowing the firm's strong growth to continue.

While there is still some uncertainty as to whether ServiceNow will execute this AI transition without hiccups or disruption, if it does, the current stock price seems like a great entry point. As of this writing, the stock trades at just 21 times this year's adjusted earnings estimates -- the stock's cheapest valuation in years.

Billy Duberstein and/or his clients has positions in ServiceNow. The Motley Fool has positions in and recommends ServiceNow. The Motley Fool has a disclosure policy.