Salesforce AI Bet Pays Off: Still a Buy?
💡 Key Takeaway
Salesforce's massive share repurchase and AI-driven growth are paying off, and the stock remains undervalued at 16 times forward earnings.
What Happened: Salesforce's AI Bet Pays Off
Salesforce (CRM) shares have surged 38% since the end of March, following a massive $25 billion accelerated share repurchase executed by CEO Marc Benioff earlier this year. The move was a bold bet against the so-called 'SaaSpocalypse' fears that AI would disrupt enterprise software.
In its second-quarter earnings report, Salesforce delivered revenue at the top end of guidance and raised its full-year outlook. More importantly, AI-related annual recurring revenue is about to cross $4 billion, a 210% increase year over year.
The company also announced a partnership with Anthropic to introduce 'Claudeforce,' integrating Claude AI deeper into Salesforce's platform. This reinforces Benioff's view that Salesforce's data and integration capabilities are essential for AI to work effectively in enterprises.
Despite the positive news, operating margin compression occurred due to heavy AI investments, with GAAP operating margin guidance slightly reduced. However, non-GAAP operating margin remains unchanged at 34.3%.
Investors who missed the initial rally may still have an opportunity, as the stock trades at just 16 times forward earnings, suggesting the market remains skeptical of management's growth projections.
Why It Matters: AI Beneficiary, Not Victim
Salesforce's results demonstrate that enterprise software companies can thrive in the AI era by leveraging their unique data assets. The company's AI revenue growth of 210% year over year is a clear signal that it is a beneficiary of AI, not a victim.
The Anthropic partnership and Claudeforce product suite position Salesforce as a critical layer between large language models and enterprise data, potentially creating a durable competitive advantage.
With remaining performance obligations growing 11% and current RPO up 14%, the company expects revenue acceleration in the second half of 2026. This suggests that the AI-driven demand is not a one-time event but a sustained trend.
The stock's valuation at 16 times forward earnings appears attractive relative to its growth potential. If management achieves its long-term targets of double-digit revenue growth and 40% adjusted operating margin, the stock could see significant upside.
However, the market's skepticism about management's optimism could persist, especially if AI investments continue to pressure margins. But with $23 billion remaining in its buyback authorization, Salesforce has ample firepower to support earnings per share growth.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
Salesforce is a buy at current levels, given its AI momentum and attractive valuation.
The company's AI revenue is growing rapidly, and its partnership with Anthropic strengthens its competitive position. Despite margin pressure, the stock trades at a reasonable 16 times forward earnings, and the remaining buyback authorization provides a floor. Risks include potential over-optimism in guidance, but the upside appears to outweigh the downside.
What This Means for Me
