Salesforce: Contrarian Buy or Fading Tech Titan? Valuing CRM's Resilience in a Post-Earnings World

On May 30, 2024, Salesforce (CRM) faced its worst single-day stock collapse in nearly two decades, plummeting 19.7% after missing quarterly revenue estimates and issuing tepid guidance. Jim Cramer, known for his bold calls, defended the company, arguing that its long-term prospects remained intact. A year later, the question remains: Was Cramer right? To answer this, we must dissect Salesforce's growth trajectory, margin resilience, and valuation—a puzzle where both hope and caution vie for dominance.

The Collapse: A Catalyst or a Symptom?

The May 2024 earnings miss—$9.13B revenue against $9.17B expectations—exposed cracks in Salesforce's growth engine. Persistent macroeconomic headwinds, delayed enterprise deals, and a 9% drop in Professional Services revenue underscored near-term fragility. Analysts like Citi downgraded the stock, citing execution risks and questioning the $8B Informatica acquisition. Yet, Salesforce's core strengths—$37.9B in FY2025 revenue (up 9% YoY), robust operating cash flow ($13.1B), and a fortress-like balance sheet—suggested deeper resilience.

Growth Prospects: Riding the AI Wave or Chasing Ghosts?

Salesforce's bet on AI and its Data Cloud is central to its future. The Data Cloud now holds 50 trillion records (doubling YoY), and Agentforce, its AI agent, closed 5,000 deals (3,000 paid) since October 2024. These initiatives are critical in a world where 75% of enterprise software buyers prioritize AI integration. Salesforce's Q4 FY2025 results showed 8% revenue growth, with AI/Data Cloud contributing meaningfully to top-line momentum. However, the company's guidance for FY2026—7-8% revenue growth—remains cautious, reflecting a market maturing faster than expected.

The challenge lies in execution. While Salesforce's AI tools are compelling, competitors like Microsoft's Copilot and Adobe's generative AI are closing the gap. The company's margin resilience—a key defensive trait—could be its saving grace.

Margin Resilience: A Lifeline or a Mirage?

Salesforce's non-GAAP operating margins have held steady at ~34%, supported by cost discipline and scale. Even in Q4 FY2025, net income surged to $1.53B, driven by margin expansion. This contrasts with peers like Oracle, whose margins have contracted under similar pressures. The $12.4B in free cash flow (up 31% YoY) further underscores financial health. Yet, investors must ask: Can margins withstand slowing revenue growth and increased AI spending? Salesforce's CEO, Marc Benioff, insists yes, pointing to the Data Cloud's $900M ARR and AI's “digital labor” efficiencies. Time will tell.

Valuation: A Contrarian Bargain or Overpriced Legacy?

At $272.25 as of June 9, 2025, Salesforce trades at a P/S of 7.1x—a discount to its three-year average of 9x but above the S&P 500's 3.0x. Analysts' average price target of $352.53 implies 29% upside, with some bullish estimates hitting $440. The stock's P/E of 27 and P/FCF of 20.6 align with broader tech multiples, suggesting no obvious overvaluation. However, the PEG ratio (P/E divided by growth rate) paints a murkier picture: at 3.3, it's elevated compared to its historical range, reflecting growth concerns.

The Contrarian Case: Why Cramer Might Be Right

• Cash Flow King: Salesforce's free cash flow has grown at a 16% CAGR over five years, providing a safety net for dividends and buybacks.
• AI's Long Game: While AI's impact is early-stage, the Data Cloud's scale and Agentforce's adoption suggest a moat against competitors.
• Undervalued on a Multi-Year View: At ~20x FY2026E EPS ($13.50), the stock is cheap relative to its 25x average during its golden growth years.

The Bearish Argument: Why Salesforce Could Fade

• Slowing Growth: Salesforce's revenue growth has slowed to ~8-9% from a 12%+ average pre-pandemic. In a market saturated with AI hype, differentiation is harder.
• Margin Pressure: R&D investments in AI and Data Cloud could crimp margins, especially if growth targets slip further.
• Macro Uncertainties: Enterprise IT budgets remain volatile, with Salesforce's international exposure (40% of revenue) vulnerable to geopolitical risks.

Conclusion: A Buy for the Patient, Not the Impatient

Salesforce is no longer a high-growth juggernaut, but its fundamentals—cash flow, margin discipline, and AI-driven moat—argue for a “hold” with a long-term horizon. At current valuations, it's a contrarian bet for investors willing to ignore short-term volatility and trust in its AI transformation. Yet, bulls must acknowledge execution risks and competition. For now, the scales tip toward patience: accumulate shares below $300, but keep a wary eye on AI's adoption curve and macro stability.

In the end, Jim Cramer's defense isn't wrong—it's just incomplete. Salesforce's future hinges on whether its AI and Data Cloud bets can reignite growth, not just sustain margins. For now, the jury remains out, but the data leans cautiously bullish for those with vision—and stomach—for the ride.