Wall Street Analysts Warn of AI Bubble, Urge Pivot to Undervalued SaaS Stocks

The narrative surrounding the artificial intelligence boom is beginning to shift from the hardware that powers it to the software that must eventually justify the massive capital expenditures. Benchmark general partner Bill Gurley recently signaled a warning on CNBC, cautioning investors about a potential 'AI infrastructure bubble.' Gurley’s thesis rests on the idea that the market has over-indexed on the physical layer of AI—chips, servers, and data centers—while neglecting the software-as-a-service (SaaS) companies that will ultimately serve as the orchestration layer for AI agents. This sentiment was echoed by NYU Professor Scott Galloway, who suggested that the recent sell-off in SaaS stocks has been overdone, creating a rare value opportunity in high-quality software names.

For much of the past year, SaaS stocks have faced significant headwinds as enterprise budgets were diverted toward experimental AI projects and hardware procurement. This 'crowding out' effect led to a sharp contraction in multiples for industry stalwarts. However, the bull case for SaaS in an AI-driven world is built on the concept of the 'system of record.' Companies like ServiceNow and Salesforce hold the critical data that AI models require to function accurately in a corporate environment. Without the structured data managed by these platforms, AI agents are prone to hallucinations and lack the context necessary to perform complex business tasks. This data moat makes established SaaS providers nearly impossible to replicate or replace, even by the most advanced generative models.

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Despite its stock being down nearly 25% year to date, the company continues to maintain revenue growth exceeding 20%.

ServiceNow serves as a primary example of this resilience. Despite its stock being down nearly 25% year to date, the company continues to maintain revenue growth exceeding 20%. Its recent launch of the 'Tower control' product signals a strategic move to become the orchestration layer for agentic AI, allowing enterprises to manage multiple AI agents across different departments. By trading at a forward price-to-earnings (P/E) ratio of 28 times—relatively modest for a high-growth software leader—ServiceNow represents a bet on the long-term utility of automated workflows.