ServiceNow and SAP: The Resilience Thesis in a Hyperscaler-Dominated AI Era

The investment case for ServiceNow and SAP rests on a clear distinction within a fractured sector. According to BNP Paribas analyst Stefan Slowinski, these two firms stand out as among the most "resilient" software companies, a view that gains weight against a backdrop of deep polarization. While the broader B2B software universe struggled in 2025, the performance was starkly bifurcated. Large-cap software and mega-caps delivered strong results, with the weighted average performance up nearly 26%, driven by accelerating AI adoption. In contrast, medium and small-cap software materially underperformed, with several key segments ending the year down by wide double digits as growth slowed and AI disruption fears took hold.

This divergence is the core of the resilience thesis. Slowinski's identification of ServiceNow and SAP as resilient is not a blanket endorsement of the entire sector, but a specific call on two established players showing signs of improving demand. Their position suggests a competitive moat that allows them to weather the turbulence affecting peers. This view is framed against a January survey that painted a more cautionary picture for the sector as a whole, warning of a shift to negative outlooks. The contrast is telling: while the survey highlighted deteriorating sentiment for companies like Datadog and Databricks, the analyst's focus on ServiceNow and SAP points to a subset of firms with stronger fundamental positioning. Their resilience, in this context, is the ability to maintain demand momentum even as the sector grapples with a shift in sentiment and the disruptive shadow of hyperscalers.

The Hyperscaler Challenge: Why Resilience Matters

The resilience thesis gains its urgency against a powerful structural headwind: the dominance of hyperscalers in the AI era. Companies like Amazon Web Services, Microsoft Azure, and Google Cloud are widely seen as capturing the core value in AI infrastructure, creating a direct competitive pressure on generic application software. This dynamic is reshaping investor priorities and has already manifested in stark market performance. In 2025, traditional software stocks lagged the broader market for the second straight year, while the "picks and shovels" of the AI buildout-semiconductors and memory devices-led the rally. The message is clear: capital is flowing to the foundational layers of the new technology stack.

For application developers, the threat is twofold. First, there is a growing perception that AI is weakening competitive moats. As noted in a recent downgrade of Adobe, generative AI is "increasing the velocity of content creation while lowering price and subscriber growth". This erosion of pricing power and growth predictability undermines the seat-based licensing models that have long powered SaaS. Second, the hyperscaler ecosystem fosters new competition. Creative tools from LLM providers like OpenAI and advertising platforms like Meta now offer alternatives to specialized software, potentially reducing the necessity for a full Adobe Creative Cloud suite. This shifts the competitive landscape from software features to integrated AI capabilities.

The result is a sector under siege. The January survey warning of a shift to negative outlooks for companies like Datadog and Databricks reflects this anxiety. When the core value proposition of software is perceived as being commoditized by AI and the cloud, even established players face pressure. In this environment, the identification of ServiceNow and SAP as resilient is not merely a positive note; it is a critical differentiator. Their strength suggests a competitive position robust enough to withstand the content creation velocity and pricing pressure amplified by hyperscaler dominance. Their resilience, therefore, is the ability to maintain demand momentum precisely when the sector's fundamentals are being questioned.

Drivers of Resilience: Execution and Specialization

The resilience thesis for ServiceNow and SAP is not abstract; it is grounded in concrete financial execution and a strategic focus that creates a moat. For ServiceNow, the evidence of strength is immediate and impressive. In its second quarter of 2025, the company delivered a strong performance, with earnings per share of $4.09 that exceeded expectations by 14.57%. More importantly, it raised its full-year subscription revenue guidance, signaling confidence in its growth trajectory. This operational discipline is powered by a specialized AI strategy. The company's proprietary enterprise-specific models, like its Now Assist AI, are designed to solve real business problems, reducing service resolution times by 40% for high-value clients. This focus on enterprise-specific AI models that outperform generic alternatives is the core of its differentiation. It allows ServiceNow to command premium pricing and secure deep, multi-year contracts, as evidenced by its 98% renewal rate and a land-and-expand model where 75% of customers use at least four products.

For SAP, the resilience is implied through its inclusion in the BNP Paribas view. The company's strength lies in its deep, embedded integration within the complex operations of global enterprises. Its core ERP and specialized AI offerings are not consumer-facing apps but the foundational systems that run critical functions in finance, manufacturing, and logistics. This creates a formidable barrier to entry. Unlike the generic AI hype from hyperscalers, SAP's value is in its industry-specific automation and compliance capabilities, which deliver tangible cost savings in regulated sectors. This deep integration fosters high switching costs and long-term platform dependence, forming a defensive moat that is difficult for newer, more generalized AI players to breach. The bottom line is that both companies are resilient because they are not merely software vendors; they are specialized, mission-critical infrastructure for the enterprise, built on execution and tailored intelligence.

Valuation, Risks, and Forward Catalysts

The investment case for ServiceNow and SAP now hinges on a classic tension: robust fundamentals versus premium valuations in a sector under siege. The companies' operational strength is undeniable. ServiceNow's strong Q2 2025 performance, with a 14.57% EPS beat and a raised full-year guidance, underscores its execution discipline. Yet, this operational excellence is priced at a steep cost. The company trades at a premium P/E ratio of 129x, a multiple that leaves no room for error. This valuation demands not just continued growth, but flawless execution, especially as analysts have already begun to temper expectations for peers, as seen in the lowered price target for ServiceNow.

The primary risk to this thesis is the pervasive negative sentiment within the software sector. The January survey warning of a shift to negative outlooks for companies like Datadog and Databricks is a red flag. In a market where B2B software equities ended 2025 net negative and lagged the broader market, a wave of downgrades could pressure valuations across the board, even for resilient performers. Geopolitical uncertainty and a cautious fiscal outlook for the crucial fourth quarter add to the macro headwinds. For SAP, the risk is more implicit but equally potent: its deep enterprise moat could be tested if AI-driven disruption accelerates, forcing a painful shift in pricing models as noted for Adobe.

The key watchpoint for both companies is whether they can maintain high subscription growth and gross margin discipline to justify their premiums. ServiceNow's 98% renewal rate and 21.5% subscription revenue growth provide a strong foundation. The company's focus on enterprise-specific AI models that deliver measurable efficiency gains is the mechanism to sustain this growth and protect margins. For SAP, the moat is its embedded operational integration, which should insulate it from the most direct AI commoditization threats. The catalyst will be their ability to convert this strategic positioning into consistent, high-quality revenue growth that meets or exceeds the elevated expectations baked into their stock prices.

In the end, the resilience thesis is not a guarantee of outperformance. It is a bet on superior execution in a hostile environment. The valuation premium means the market is pricing in perfection. Any stumble in growth, margin, or guidance could trigger a sharp repricing, as the sector's negative sentiment provides fertile ground for such a move. The forward catalysts are clear, but so are the risks.