KeyBanc’s drastic downgrade of ServiceNow stock to “underweight” has sent ripples through the market, prompting a strong reaction from CNBC’s Jim Cramer. The research firm’s analyst, Jackson Ader, initiated coverage with a sell rating and a $775 price target, a move Cramer described as “one of the most controversial calls I’ve ever seen.”
The core of Ader’s bearish thesis lies in the evolving narrative surrounding artificial intelligence and its potential impact on the Software-as-a-Service (SaaS) model. The “AI is eating software” narrative, first popularized by Melius Research, suggests that advanced AI capabilities could reduce the need for human labor, thereby diminishing the demand for per-seat software licenses, the bedrock of the SaaS business.
This concern has already plagued other major SaaS players, most notably Salesforce. The company has faced investor skepticism regarding its Agentic AI platform, Agentforce, with many questioning if it could cannibalize its core customer relationship management (CRM) business. While Salesforce CEO Marc Benioff has positioned AI as a feature that enhances enterprise software, the underlying anxiety about head count reduction persists.
ServiceNow, a company that has aggressively integrated AI into its IT workflow and device management solutions, now finds itself squarely in the crosshairs of this narrative. Ader’s note to clients highlighted that ServiceNow’s own AI products employ a hybrid monetization strategy, designed to cushion the blow from potential seat-count pressure. However, he cautioned that this approach has not been enough to insulate other SaaS sub-sectors from similar headwinds.
“There are signals in the IT back-office employment data that raise the likelihood that the ‘Death of SaaS’ narrative could come for ServiceNow in 2026,” Ader wrote, suggesting that the company’s core business, which supports IT departments, could face significant disruption.
Despite ServiceNow’s stock having declined by approximately 27% year-to-date, Jim Cramer remains hesitant to dismiss the company’s prospects entirely. He expressed a strong belief in ServiceNow CEO Bill McDermott’s ability to navigate these challenges, stating, “With all due respect to Ader’s high-quality work, I can never count Bill McDermott out like this.” McDermott has a proven track record of strategic execution and innovation, making him a formidable leader in the tech landscape.
The market’s reaction underscores the delicate balance that SaaS companies must strike in the age of AI. While AI offers immense potential for efficiency and automation, its integration raises fundamental questions about business models built on recurring subscription revenues tied to user counts. ServiceNow’s ability to adapt its pricing and value proposition in response to these shifting dynamics will be crucial in determining its long-term trajectory. The company’s strategic investments in AI, coupled with McDermott’s leadership, will be closely watched as this high-stakes narrative unfolds.
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