ServiceNow - One Of My Favorite Stocks In An Industry I Hate

I’m not a fan of software stocks, as most readers may have figured out by now.  That’s because Artificial Intelligence is systematically breaking down the barriers to entry that SaaS (software as a service) companies have relied on for more than a decade. I remember when SaaS started to gain momentum when I was in college in 2016. It was truly a great thing, as companies were able to build competitive advantages based on “code” and rapidly scale operations because of the asset-light nature of the software industry.  Unfortunately, that is over, as Generative AI and autonomous coding agents allow competitors to replicate user interfaces and basic database management tools at a fraction of the historical cost. In other words, the price of “code” is rapidly dropping, turning software into a commodity. Think about it. If your favorite software stock is just a user interface layered over a standard database, its moat is breaking down. Needless to say, I’m generalizing. Basically, the bullish thesis has gone from “SaaS can rapidly scale due to strong moats and high secular demand” to “some software companies won’t be disrupted because corporations cannot 'vibe code’.”  I hate that transition.  However, I am not abandoning the enterprise technology sector entirely. In fact, there is one company that is an excellent example of how one can survive in this industry. That company is ServiceNow, Inc. (NOW) .  [Inline image] Source: StockCharts (NOW) While I am aggressively avoiding generic software, I am bullish on ServiceNow, as this stock stands out as an impenetrable fortress in what is now a vulnerable industry.  That’s what this article is all about.  So, let’s get to it! The "System of Action" vs. The Feature To understand why I believe that ServiceNow is immune to the AI commoditization wave, we have to understand its fundamental architecture. That’s the complex part I never bothered to figure out. Now, I’m glad I did.  For example, most software applications are "systems of record," which means they store data for specific departments like HR, finance, or customer service. ServiceNow is completely different, as it is the "system of action." This means it sits on top of these databases and produces workflows across the entire enterprise.  In a recent CNBC interview I watched (I cannot find the link - sorry!), the CEO said that while AI is smart in figuring things out, it cannot act on it. It still needs a company that can implement company changes and actively use data. That’s what large enterprises need.  Essentially, while AI makes it significantly easier to write code, it does absolutely nothing to help a startup deal with the complex, deeply embedded, and highly customized operational workflows of a global corporation. That also means the switching costs for ServiceNow are extremely high because it serves as the central nervous system for these enterprises. Once you’re in, it’s very hard to leave. I feel the same about being in the Apple ecosystem. It’s different, yet similar, because I don’t want to deal with all the issues when switching to a different computer or phone brand. That’s why NOW has a 98% renewal rate without any signs of weakness due to AI, as we can see below.  [Inline image] Source: ServiceNow CEO Bill McDermott said this perfectly during the 4Q25 earnings call, as he directly addressed the exact bearish software thesis I just covered:  "The speculation of Al will eat software companies is out there. Let's clear it up with the facts. Enterprise Al will be the largest driver of return on the multitrillion-dollar super cycle of investment in Al infrastructure. The real payoff comes when trillions of tokens move beyond pilots to be embedded directly into the workflows where business decisions are made. ServiceNow is the gateway to this shift, serving as the semantic layer that makes Al ubiquitous in the enterprise.” Hence,