Salesforce's Earnings Glow Fades on Tepid Sales Outlook

Salesforce Inc., the cloud software giant that's long been a bellwether for enterprise tech spending, delivered a mixed bag in its latest quarterly report. While profits and revenue handily topped Wall Street's expectations, the company's forward guidance painted a picture of sluggish growth, underscoring the challenges of navigating an AI-driven market upheaval.

Shares tumbled in after-hours trading, reflecting investor jitters that Salesforce's push into artificial intelligence isn't accelerating revenue as swiftly as hoped. In a year where tech peers have ridden the AI wave to dizzying heights, Salesforce's stock has languished, down 23% through Wednesday's close—a stark reminder that even established players aren't immune to disruption narratives.

The results, released after the bell on Wednesday, highlight a company in transition. CEO Marc Benioff, ever the evangelist, bubbled with optimism on the earnings call, declaring this "the most transformative time in our industry ever." Yet, the numbers tell a more cautious tale, one where AI promises are colliding with the realities of enterprise adoption cycles and competitive pressures.

Strong Quarter, But Shadows Loom

Salesforce's fiscal second quarter, which wrapped up in July, showcased resilience amid economic headwinds. Revenue climbed 10% year-over-year to $10.24 billion, surpassing the $10.14 billion analysts had penciled in, according to LSEG data. Adjusted earnings per share came in at $2.91, well above the $2.78 consensus estimate. Net income surged to $1.89 billion, or $1.96 per share, from $1.43 billion a year earlier.

A key metric for investors—current remaining performance obligations (CRPO), essentially a snapshot of booked but unearned revenue—rose 11% to $29.4 billion. This figure, often seen as a leading indicator of future sales, aligned with expectations but didn't ignite fireworks. The company's Data Cloud and AI segment, a focal point for growth, hit $1.2 billion in annual recurring revenue, signaling progress in its data management push.

These beats underscore Salesforce's operational discipline. The company has honed its core software-as-a-service (SaaS) offerings, which power customer relationship management for thousands of enterprises. Yet, the enthusiasm was short-lived, as the spotlight shifted to the guidance—and the AI elephant in the room.

Guidance Misses the Mark, Fueling AI Doubts

Looking ahead to the fiscal third quarter ending in October,

projected revenue of $10.24 billion to $10.29 billion, falling short of the $10.29 billion analysts anticipated.

Adjusted earnings guidance of $2.84 to $2.86 per share was roughly in line with estimates, but the sales outlook suggested growth would hover around 9% to 10%—a far cry from the double-digit surges that once defined the company.

CRPO growth is expected to tick "slightly above" 10%, matching projections but offering little upside surprise. For the full year, Salesforce held steady on its revenue forecast of $41.1 billion to $41.3 billion while nudging up earnings guidance to $11.33 to $11.37 per share, from a prior range of $11.27 to $11.33. Analysts had modeled $41.2 billion in sales and $11.31 in adjusted earnings.

This tempered view comes as Wall Street grapples with the "AI disruption narrative," as

analyst Keith Weiss aptly termed it. Incumbent SaaS providers like Salesforce, which charge per user for tools that automate sales, marketing, and service tasks, face existential questions.

Will generative AI render some of these functions obsolete, shrinking customer workforces and, by extension, subscription revenues? Emerging AI startups, unburdened by legacy systems, are nipping at the heels, promising more agile, intelligent alternatives.

Barclays analyst Raimo Lenschow captured the sentiment in a post-earnings note: Investors may need to parse qualitative updates on AI traction and await next month's Dreamforce conference for renewed vigor. Indeed, the stock's 4% to 5.5% plunge in extended trading—closing the day at $256.45—pushed its enterprise value-to-free cash flow ratio to a decade low, per

analysts who maintain a buy rating despite the gloom.

Agentforce: Promise vs. Pace of Adoption

At the heart of Salesforce's

is Agentforce, its AI tool designed to handle tasks like sales development and customer service autonomously. Launched late last year, it has notched over 6,000 paid deals, with annual recurring revenue reaching $100 million by May. Benioff highlighted a 60% quarter-over-quarter jump in customers moving from pilots to full production, with expanding use cases driving consumption.

"I'm more excited about anything in my entire career," Benioff proclaimed on the call, pushing back against doomsayers. When

analyst Kash Rangan probed the defensibility of the SaaS model, Benioff dismissed the notion that enterprise apps are vanishing. "I don't understand what the replacement is," he said, pointing to his own operations and those of customers as evidence of enduring demand.

Yet, CFO and COO Robin Washington offered a dose of realism in a post-results interview. Large enterprises and regulated sectors are proceeding cautiously with AI implementations, she noted. To spur uptake, Salesforce has rolled out flexible pricing and bolstered its sales force. Still, the lack of an updated ARR figure for Agentforce left some analysts wanting more concrete proof that AI is translating to top-line acceleration.

This hesitation mirrors broader market dynamics. While hyperscalers like

and have seen AI fuel explosive growth, Salesforce's single-digit revenue expansion since mid-2024 has left it trailing. Peers in the Dow and large-cap tech have outpaced it, amplifying concerns that its AI investments aren't yielding the same lift.

Strategic Plays to Shore Up Defenses

Salesforce isn't standing still. During the quarter, it announced plans to hike prices on select products, a move to capture more value from its ecosystem. It's also deepening its foray into information technology service management, an area that pits it more squarely against

Inc., the category leader.

A bigger splash came in May with the $8 billion agreement to acquire

, a data management specialist. Washington indicated the deal should close in the fiscal fourth quarter ending January 2026 or shortly thereafter, bolstering Salesforce's data capabilities—a critical enabler for AI.

In a nod to shareholder returns, the board authorized an additional $20 billion for share repurchases, lifting the total program to $50 billion. This capital return strategy could provide a floor under the stock, especially as free cash flow remains robust.

Investor Crossroads: Optimism or Overhang?

As Salesforce charts its course, the tension between Benioff's unbridled enthusiasm and the market's skepticism is palpable. The company insists its SaaS foundation is rock-solid, with AI as an enhancer rather than a disruptor. But with revenue growth stuck in low gear and AI adoption unfolding gradually, investors are left parsing tea leaves.

Dreamforce, Salesforce's annual extravaganza, looms as a potential catalyst. There, expect deeper dives into Agentforce metrics and customer wins that could reignite momentum. For now, though, the weak guidance serves as a cautionary signal: In the AI era, even beats can feel like misses if the future looks foggy.

Wall Street's verdict? Mixed. While some like Jefferies see value in the depressed multiples, others await tangible proof that Agentforce can bend the revenue curve upward. Salesforce's journey from here will test whether its transformation narrative can outpace the disruption fears—or if the stock's 23% year-to-date skid is just the beginning.