Software stocks spent the first part of 2026 among the market's weakest names. Investors worried that artificial intelligence (AI) agents would chip away at the per-seat licensing model on which much of enterprise software is built, and the selling was severe. The group, however, has since stabilized. May was the sector's best month in more than two decades. Though shares pulled back again over the past week, leaving much of the year's earlier damage in place.
That sets up a useful comparison between two enterprise software leaders. Salesforce (CRM 0.25%) brought customer relationship management (CRM) to the cloud and is now pushing hard into AI agents through its Agentforce platform. And ServiceNow (NOW 3.13%) automates the digital workflows that move work through large organizations, from IT support to security response.
Both are down meaningfully in 2026. But which is the better buy?
Image source: The Motley Fool.
Salesforce: cheaper, but growing slower
Salesforce's fiscal first quarter of 2027 (the period ended April 30, 2026) was solid. Revenue rose 13% year over year to $11.1 billion, an acceleration from the 9% growth it reported two quarters earlier, though some of that lift came from its roughly $8 billion acquisition of data-management company Informatica. Subscription and support revenue, the recurring core of the business, grew 14%, and the company's non-GAAP (adjusted) operating margin expanded to 34.8% from 32.3%.
Importantly, the AI story is starting to show up in the numbers. Salesforce said annual recurring revenue from Agentforce, its suite of AI agents, surpassed $1 billion for the first time, up 205% year over year.
NYSE: CRM
Key Data Points
And its messaging service, Slack, is increasingly part of the bull case for the stock, too.
"Slack was nearly half of our million-plus wins this quarter, up 80% year-over-year," chief executive officer Marc Benioff said during the company's fiscal first-quarter earnings call.
Still, for the full fiscal year, Salesforce guided for revenue of roughly $45.9 billion to $46.2 billion, about 11% growth -- and only around 8 percentage points of that is organic, with Informatica supplying the rest.
The stock is down about 30% year to date as of this writing, and that decline has reset the valuation. Salesforce now trades at a price-to-earnings ratio of about 22 -- a reasonable valuation.
ServiceNow: faster growth at a much steeper price
ServiceNow is growing far faster.
In the first quarter of 2026, both subscription revenue and total revenue rose 22% year over year, to $3.67 billion and $3.77 billion, respectively -- an acceleration from about 21% subscription growth in the prior quarter.
ServiceNow charges, in part, based on how much its platform is used rather than solely on seat counts, and demand for its AI tools is growing rapidly, helping its business inflect.
With Now Assist, its generative AI offering, the number of customers spending $1 million or more annually grew by more than 130% year over year.
NYSE: NOW
Key Data Points
And management raised its AI ambitions on the company's first-quarter earnings call, with chief executive officer Bill McDermott saying of the prior $1 billion AI target, "We're already talking about $1.5 billion now, and it's on a run."
ServiceNow chief financial officer Gina Mastantuono added that customers are "moving past experimentation into full-scale, enterprisewide AI investment."
ServiceNow, like Salesforce, also turns revenue into cash at an impressive clip. ServiceNow's free cash flow in the quarter was about $1.67 billion -- a 44% free cash flow margin.
The catch, however, is the price.
After a 5-for-1 stock split late last year, ServiceNow shares trade around $112 as of this writing. That gives the stock a price-to-earnings ratio of about 67 -- more than triple Salesforce's.
Sure, the stock is down about 27% in 2026. And it fell particularly hard over the past week. But shares carry a premium that leaves little room for error.
Which stock is the better buy?
So, which is the better buy?
To me, ServiceNow looks like the more attractive investment, even with its richer valuation. It's growing much faster than Salesforce, with growth accelerating rather than slowing, and it converts a large share of revenue into free cash flow. Just as important, a meaningful portion of that revenue scales with how much work runs through its platform rather than just the number of employees logging in -- a model that may hold up better in a world of AI agents than the seat-based approach that has weighed on the group this year.
Of course, none of this makes Salesforce a bad stock. Its valuation is far more forgiving, and a return to faster organic growth could make today's price a bargain. But ServiceNow's premium, while a risk worth respecting after this year's volatility, buys a stronger business -- making it both the better company and, despite the higher price tag, arguably the better investment.
