Key Takeaways
- ServiceNow fell 34% last week and 81% of software stocks were down, as investors worried that AI labs will build apps to replace established software.
- Chamath Palihapitiya expects AI-native startups that resell the labs’ tokens to be hit first, so the selloff in Salesforce and ServiceNow looks aimed at the wrong companies.
- Analysts expect ServiceNow’s revenue to grow about 20% a year through 2028, and Salesforce’s free cash flow reached $14.4 billion in its latest fiscal year.
- Salesforce trades at 15x forward earnings, against a five-year average of 28x, and its December report is the next test of whether agents add to its growth.
Software stocks just had a brutal week. ServiceNow (NOW) fell 34% in the five trading days to Oct. 30, and 81% of software names were down, by venture investor Tomasz Tunguz’s count.
The fear is that AI labs like OpenAI and Anthropic will build their own apps and take business from the systems of record that ServiceNow and Salesforce (CRM) sell.
Social Capital founder Chamath Palihapitiya thinks the labs have an easier target. Here’s what he said in a post on X on Monday, Nov. 2:
“The first victim will not be established SaaS but AI Natives that spend heavily on the labs now.”
He meant startups in legal, sales and customer service.
If he’s right, the market just sold the wrong stocks.
The Labs Already Have the Roadmap
Chamath starts with price. “As the cost of the marginal token approaches zero, the value is not in selling tokens,” he wrote. “It is very clearly in moving up the stack and owning the application layer.”
The AI-native startups come first because they run on the labs’ models. In his words, “the roadmap is clear from the traces and spans the model companies have from these companies already.” Those are the records of every request the startups send through the labs’ models.
That makes a lot of sense to me. A legal or customer service startup that resells a lab’s tokens is paying its future competitor and showing it which features customers actually use.
Systems of Record Are a Harder Target
Jake Stauch, co-founder and CEO of Serval, drew a similar line on a recent episode of the No Priors podcast: “So there will be a SaaSpocalypse, but in that kind of point solution, smaller market cap type companies.” He doesn’t expect companies to drop core systems like IT service management and CRM software: “I think those are going to stick around.”
Analysts don’t expect ServiceNow’s business to dry up either. Consensus estimates have its revenue rising from $13.3 billion in 2025 to $22.8 billion in 2028.
That’s growth of about 20% a year, and these estimates date from Nov. 2, after ServiceNow’s third-quarter report.
Salesforce is selling AI itself. Agentforce annual recurring revenue passed $1.5 billion at July 31, up more than 240% (on a definition that now includes Slackbot).
Even so, Salesforce trades at 15x forward earnings, a little over half its five-year average of 28x.
And its free cash flow keeps rising, from $5.3 billion in fiscal 2022 to $14.4 billion in fiscal 2026 (the year ended January 2026).
I’d bet few AI-native startups paying the labs for every token can say the same.
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Salesforce and ServiceNow Aren’t Immune
Chamath doesn’t stop at the startups, though. “The next are the ‘connective tissue’ applications that make using the models a foundational part of a workflow,” he wrote. A lot of what Salesforce and ServiceNow sell fits that description.
Stauch’s own company is taking on ServiceNow, too. Serval, he said, is “displacing those tools. So I think there will be a new generation of incumbents.” And ServiceNow fell 27% on Oct. 29, the day after its third-quarter report, as its backlog outlook slowed.
Still, a rival like Serval has to win over IT departments one contract at a time. That’s a much slower road than the one Chamath sees between the labs and the startups.
Why Salesforce Stock Looks Mispriced
The selloff treated Salesforce and ServiceNow as the labs’ first targets, when the startups reselling the labs’ tokens are much higher on the list. Salesforce stock is priced for a threat that looks a lot further off than the market thinks.
The incumbents still have to prove that agents add to what they sell. When Salesforce reports its third quarter in early December, I’ll be watching whether revenue growth, excluding its Informatica acquisition, picks up from the second quarter’s 6%.
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