While the market is still trading near all-time highs, not every part is in the middle of a bull market, not even within the tech sector. In fact, the software-as-a-service (SaaS) space has been battered. This started last year, but it's only gotten worse in 2026.
The reason for this is that there is a growing fear among investors that artificial intelligence (AI) will disrupt the SaaS space. There are a couple of main tenets behind this argument.
The first is that most SaaS businesses are seat-based, meaning they get paid based on how many users have access to their platform. As AI agents take on more responsibilities, some believe customers will need fewer seat licenses. While this is possible, the natural progression is likely that SaaS companies shift more to a consumption-based price model.
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The second big argument is that organizations won't need prepackaged SaaS offerings and instead will be able to vibe code (program with AI using natural language) custom solutions to fit their exact needs. There are a few flaws to this argument.
The first is that it has always been possible to develop custom software, but the cost of maintenance, compliance, and security generally isn't worth it. Second, while building a prototype is easy, creating production-ready software is difficult, and most organizations aren't going to want to trust mission-critical tasks to some quickly made software. In addition, many SaaS solutions are built on massive layers of organizational data and integrated with other systems. That is tough to replace.
The third big argument is that AI will lead to a big new wave of upstart competitors, which, by starting as AI-native companies, will have an advantage and can undercut on price. The problem with this is that switching costs for most SaaS companies are pretty huge when they are integrated throughout an organization. And as far as new customers go, there is an old adage that no one ever got fired by choosing the large incumbent. By and large, organizations are going to go with a large and trusted incumbent unless a competitor can truly differentiate themselves, and vibe coding a cheaper solution isn't that.
While vibe coding could replace SaaS companies that are just pretty user interfaces (UI) on top of a simple database, the market has sold off the entire sector. However, the code or the UI isn't the moat; it's sitting within the daily workflow of an organization's data and being the system of record that is the moat.
That's why ServiceNow (NOW 2.16%) is one of the top stocks to buy in the middle of the SaaS sell-off. The stock is down 30% year to date, as of this writing, after falling nearly 28% in 2025.
NYSE: NOW
Key Data Points
A top SaaS company to buy
If an organization were to replace ServiceNow with an alternative, it wouldn't just be replacing a UI; it would be replacing the system that connects an organization's workflow between human resources, customer service, and its bread and butter, information technology (IT). That would mean untangling security permissions, audit trails, and custom business rules. That's just not going to happen.
Meanwhile, ServiceNow's unified data system and structured workflows make it an ideal environment for AI, which is why the company has been leaning into the technology. Its generative AI suite of solutions, Now Assist, has been a big growth driver, while it is now getting into agentic AI with AI Control Tower, a centralized platform for managing AI agents both from ServiceNow and third parties. It's also recently gone out and acquired AI cybersecurity companies Armis and Veza to help enhance its security capabilities, which will become more important in an agentic AI world.
Thus far, ServiceNow continues to see strong growth. In Q4 2025, its subscription revenue climbed 21% year over year, while for Q1 2026, it projected it would grow by 21.5%. Meanwhile, the SaaS sell-off has trimmed its valuation to a forward price-to-sales multiple of 7 based on 2026 analyst estimates and a forward price-to-earnings (P/E) ratio of just above 25.5 times.
With ServiceNow much more likely to be an AI winner than an AI loser, now is a good time to buy this great SaaS stock on this dip.
