Corporate software bellwether Salesforce (CRM) slid ~7% following its Q2 FY26 earnings report last week, as soft guidance for Q3 overshadowed what was otherwise a strong quarter. However, almost as fast as the stock fell, it rose minutes later, recovering almost the entirety of its slide and now trading only $4 lower than before the report was published.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
I believe Salesforce is a Buy for long-term investors, supported by its attractive valuation and strong AI strategy. The past week’s price action reinforces CRM’s ‘roly-poly-toy’ reputation—the stock may stumble, but it always seems to get up again.
Earnings Beat, Guidance Disappoints
For the second quarter, Salesforce reported earnings of $2.91 per share, surpassing analysts’ consensus estimate of $2.78. Meanwhile, revenue rose to $10.2 billion, which was more or less what the market expected. The results extended Salesforce’s track record of delivering consistent earnings beats — 19 out of the last 20 quarters — reinforcing its reputation as one of the most reliable performers in the enterprise software industry.
However, the stock has decoupled from the S&P 500 (SPX) since June this year, despite its resilience in delivering positive results.
What shook the market was Salesforce’s forward guidance. The company projected third-quarter revenue of $10.24–$10.29 billion, with the midpoint landing just below the $10.29 billion analyst consensus. For the full year, management guided revenue of $41.1–$41.3 billion—roughly in line with Wall Street expectations but short of the upside that bullish investors were looking for. That more measured outlook was enough to trigger a massive sell-off.
Agentforce Becomes Salesforce’s AI Bet and Savior
Now claiming to be “the world’s number one AI CRM,” Salesforce’s rapid pivot into artificial intelligence supplements its bottom line and, rather importantly, is on track to establish the technology as its primary revenue driver. As generative AI and large language models have swept across the enterprise landscape, Salesforce has moved quickly to embed AI throughout its product suite. The company continues to invest heavily in its Agentforce strategy to drive long-term growth.
Agentforce is an infrastructure platform that allows businesses to build and scale digital agents to automate and augment processes such as sales outreach, customer service inquiries, and marketing campaigns. The global market for AI agents is projected to grow from $5.4 billion in 2024 to over $50 billion by 2030, representing a compound annual growth rate (CAGR) of more than 45%.
With AI integration into its products now a top priority, Salesforce is at the front of the queue in capitalizing on this wave of expansion. As the backbone of customer relationship infrastructure for thousands of enterprises worldwide, it already controls the data, governance frameworks, and software tools that make large-scale enterprise AI adoption both practical and scalable.
Adoption of Agentforce remains in the early stages but is gaining impressive momentum. Salesforce has secured more than 12,500 Agentforce deals, including 6,000 paying customers—up from 4,000 in the prior quarter. Notably, over 40% of bookings are coming from existing Salesforce clients, underscoring the company’s ability to integrate AI solutions seamlessly with its established CRM platform.
Why Salesforce Has an Edge
Unlike many AI upstarts, Salesforce already manages one of the world’s most valuable assets: customer interaction data spanning sales, marketing, commerce, and service. This foundation enables Salesforce to deliver AI agents that are not only technically sophisticated but also contextually relevant to its customers’ operations. Management has emphasized that these AI agents are designed to complement human workers, augmenting productivity and driving efficiency gains across industries.
The company has also introduced flexibility in how it prices AI consumption. From traditional per-user models to credits, bundling, and “all-you-can-eat” agreements, Salesforce is tailoring pricing to customer adoption patterns. Flexible consumption agreements in particular have been gaining traction, creating further competitive moats and locking in customers more deeply.
However, not all is rosy in the CRM garden. The firm has laid off ~4,000 workers so far this year, with many commentators noting that AI-enabled efficiencies run both ways: they help Salesforce’s clients pay less, but they also enable Salesforce to spend less on staff.
CRM’s Valuation Remains Attractive Despite Last Week’s Setback
Salesforce trades at one of its most reasonable valuations in years, despite its strong growth and AI positioning. CRM’s forward price-to-earnings ratio stands at 22.1, well below its five-year average of nearly 39 and slightly under the sector median of 23.4. Its forward EV-to-EBIT multiple of 16.8 also compares favorably with both its historical average of 31.4 and the sector median of 19.8.
Free cash flow is another highlight. The company’s free cash flow yield stands at just over 5%, the highest in a decade. Forward free cash flow per share growth is projected at 17.2%, comfortably above the sector average of 14.9%. Operating cash flow growth is projected at 16.1%, also above the sector median of 14.6%.
Possibly most important, especially for the firm’s longevity, margins continue to expand, with Salesforce now reporting its tenth consecutive quarter of operating margin improvement. Its EBITDA margin stands at nearly 29%, significantly higher than its five-year average of 18% and surpassing the sector median of just over 10%. This consistent margin expansion underscores the company’s efficiency initiatives and provides the financial flexibility to fund aggressive AI investments without compromising profitability.
Is Salesforce a Buy, Sell, or Hold?
According to TipRanks, Salesforce holds a Moderate Buy consensus rating based on 40 analyst ratings. Thirty analysts rate the stock a Buy, nine a Hold, and just one a Sell. CRM’s average price target is $333.75, implying more than 32% upside. In broad terms, Wall Street is offering price targets ranging from $221 to $430 per share.
CRM’s Bounce Proves its Worth
Salesforce’s post-earnings pullback reflects disappointment over slightly soft guidance, but the long-term narrative remains intact. The company continues to grow revenue at a healthy double-digit pace, expand margins for the tenth straight quarter, and generate record free cash flow. More importantly, the Agentforce platform positions Salesforce to capture a massive opportunity in enterprise AI agents, with adoption metrics already showing strong traction.
Valuation appears attractive compared to both historical and peer benchmarks, offering a rare opportunity to acquire a high-quality software leader at a discount. At the same time, it invests in the next wave of AI growth. In my view, the current weakness presents an opportunity to establish positions ahead of what could be a multi-year AI-driven growth cycle.