Can CRM sustain its earnings momentum into 2026?

**Salesforce's ability to sustain its earnings momentum into 2026 is uncertain and depends on several factors.** Here's an analysis to support this view:

1. **Recent Performance and Outlook**:
- Salesforce reported fiscal Q4 2025 earnings with net income of $1.71 billion, revenue of $9.99 billion, and diluted EPS of $1.75. The company's revenue grew by 7.6% year-over-year, and net income grew by 18.12%.
- For fiscal 2026, Salesforce projected revenue between $40.5 billion and $40.9 billion, which is slightly below the average analyst estimate of $41.35 billion. Adjusted EPS guidance was set between $11.09 and $11.17, narrowly missing the expected $11.18.
2. **Growth Drivers and Challenges**:
- Salesforce's growth has been driven by its go-to-market strategy, focus on customer success, and initiatives to integrate generative AI into its offerings. However, the company's weak outlook for fiscal 2026 is a concern.
- The company's segments, including Subscription and Support, Professional Services, and Others, have shown varying degrees of growth. Subscription and Support, which contributes 94.6% to total revenue, increased by 8% year-over-year.
- Salesforce's AI initiatives, such as Agentforce and Data Cloud, have been highlighted as growth drivers. Agentforce 2.0 has been well-received, and Data Cloud has seen a significant increase in annual recurring revenue.
3. **Market Analysts' Views**:
- Analysts have set a strong buy consensus rating on Salesforce with an average price target of $358.69, indicating confidence in the company's potential.
- Canaccord Genuity recently reduced its price target to $400, while maintaining a buy rating, citing concerns about the company's guidance for fiscal 2026.
- BofA analyst projects Salesforce's free cash flow to reach $28.2 billion by 2031, driven by sales/marketing and Agentforce growth. However, macroeconomic risks, including tariffs, may delay this target.
4. **Financial Health and Valuation**:
- Salesforce has a strong financial health with impressive gross profit margins of 77% and levered free cash flow of $11.9 billion. The company's valuation is approximately 19 times enterprise value to free cash flow based on calendar year 2026 estimates, which some analysts view as attractive.
- The company's P/E ratio is 46.83 trailing and 26.74 forward, which suggests that the stock may be expensive compared to some other stocks.

In conclusion, while Salesforce has strong financials and growth drivers, the uncertainty around its 2026 outlook and the potential impact of macroeconomic risks suggest that sustaining its current earnings momentum may be challenging. The company's AI initiatives and market position are positive signs, but the weak guidance and valuation concerns may limit its earnings growth in the coming year.