Impressed by Salesforce’s Blowout Quarter? Here’s Why You May Be Celebrating Too Soon.

Salesforce (CRM) just gave investors the quarter they had been waiting for. The software giant beat expectations, and the stock jumped about 13% after hours and is up over 20% this morning. Revenue rose 11% to $11.3 billion, and free cash flow jumped 81% to $1.1 billion. Adjusted earnings came in at $5.90 a share, far above the $3.27 analyst consensus. Management also lifted its full-year profit outlook well beyond Wall Street’s expectations. Apart from the numbers, the company unveiled Claudeforce, a new partnership with Anthropic that brings Claude’s AI into its software. Salesforce has spent much of the year fighting off doubts. So this was a statement. Investors had feared AI would make traditional software like Salesforce less necessary. The fear even picked up a nickname, the “SaaSpocalypse.” During the earnings call, CEO Marc Benioff called it a “nonsense” narrative and said that it was time for it to stop.

The quarter itself, though, may not have been as strong as it seems on paper. Revenue barely beat forecasts. The profit number blew past expectations, but a large part of that came from a $2.6 billion gain on its strategic investments, tied in part to its Anthropic stake. Strip that out, and adjusted earnings would have been closer to $3.37, only marginally ahead of the $3.27 analysts expected. The roughly 80% profit beat effectively shrinks to about 3%. So the biggest lift to profit came from Salesforce owning a piece of an AI company rather than selling AI to its own customers. The core business looks steady rather than spectacular. There was one encouraging sign worth noting. Current remaining performance obligations, a measure of booked future business, grew 14%. That points to solid demand ahead. But the AI product that has investors excited is barely off the ground. Claudeforce is live only for pilot customers, with a wider beta due in September. For now, Salesforce has quieted its doubters. The bigger challenge is showing its AI products, not its stake in one, can carry the growth from here.

About Salesforce Stock 

Salesforce is a global enterprise software company that provides customer relationship management (CRM) and cloud-based business applications across sales, service, marketing, commerce, and data analytics. Its Customer 360 platform, powered by data tools and trusted AI, enables organizations to unify customer data and drive personalized engagement. The company has also expanded its artificial intelligence capabilities through products such as Agentforce. Salesforce serves customers across a wide range of industries, including financial services, healthcare, manufacturing, retail, and government. Founded in 1999, the company is headquartered in San Francisco, California. 

Over the last 12 months, Salesforce’s stock declined 3%. The iShares Expanded Tech-Software ETF (IGV) has also been down for most of the same period and is now up just 1%. However, the company gained momentum in the last month, with CRM stock increasing 40%, and this morning it is up a massive 21%, driven by growing optimism around its AI business, particularly the adoption of its Agentforce platform.

Salesforce’s valuation reflects how worried investors have been this year that AI will kill the software company. The forward price-to-earnings (P/E) of 18.99x is a fairly ordinary multiple for a profitable software company this size. The forward price-to-sales (P/S) ratio of 4.06x sits about 35% below its 5-year average of 6.24x. This indicates the stock is trading at a steep discount to its historical average. The EPS outlook seems scattered. Analysts expect growth of 34% in fiscal 2027, followed by a negative 6% in 2028, and then recovering to 15-16% growth in the next 2 years. Part of that uneven trajectory is due to this quarter’s investment gain, which lifts the current year and makes next year’s earnings look softer in comparison. 

The balance sheet partly adds to investors' concerns. Salesforce holds just $11.84 billion in cash against $42.55 billion in debt, leaving it with a net debt of nearly $31 billion. This is still manageable, though, given that the company is worth roughly $168 billion and has just reported a significantly improved free cash flow. For investors, the cheap valuation could be a potential entry point. It leaves room for the stock to recover if its AI push turns into real growth. On the other hand, the modest earnings path is a reminder of why the discount opened up in the first place. 

What Do Analysts Expect for CRM Stock?

RBC Capital analyst Rishi Jaluria reiterated a “Hold” rating on CRM and assigned a price target of $250. The analyst’s price target reflects a 22% upside from the current levels. Similarly, Wells Fargo analyst Michael Turrin also maintained a “Hold” rating with a price target of $230. In contrast, Needham analyst Scott Berg reiterated a “Buy” rating on CRM and set a price target of $400, which reflects an impressive 61% upside from the current share price. 

Based on 53 Wall Street analysts covering the stock, CRM holds a consensus “Moderate Buy” rating. Out of those, 33 have a “Strong Buy” rating, two have a “Moderate Buy” rating, 16 have a “Hold” rating, one has a “Moderate Sell” rating, and one has a “Strong Sell” rating. CRM has a median price target of $252.29, which, after this morning's price spike, the stock is now trading around. The high price target of $475 implies an impressive 91% upside from the current share price. This upside reflects analysts' confidence in Salesforce’s long-term growth prospects, driven by strong adoption of Agentforce and Data 360 and rising contracted revenue.