Salesforce Eyes Robust Growth with AI and Security Amidst Rising Competition and Economic Challenges

As Salesforce (CRM.US) approaches the announcement of its fiscal year 2025 fourth-quarter financial results on February 26th, market sentiment remains optimistic. Analysts project Salesforce's total revenue to reach $100.5 billion, reflecting an 8.1% year-over-year increase, which is notably above the upper limit of the company's previous guidance range of $99 billion to $101 billion. Additionally, adjusted earnings per share are expected to rise by 9.4% to $1.61.

The company's growth is primarily driven by advancements in artificial intelligence. Since the launch of its generative AI product, Agentforce, in October 2024, Salesforce has seen impressive commercialization progress. The third-quarter financial report shows a more than 200% year-over-year increase in AI-related orders, with over 200 orders specifically driven by Agentforce. This trend highlights the commercialization potential of generative AI within Salesforce's offerings and bolsters investor confidence.

Moreover, industry leader Goldman Sachs has noted Salesforce's expanding market share in the security sector. The development of emerging SaaS security modules, such as identity protection and cloud workload management, promises the possibility of sustained revenue growth exceeding 20% over the long term. According to Morgan Stanley's latest research, although fourth-quarter net new annual recurring revenue (NNARR) might drop by 34% year-over-year, the order volumes have shown significant improvement following a downturn at the end of last year, potentially exceeding market expectations.

Looking ahead, Salesforce's revenue guidance for fiscal year 2026 suggests a 20% year-over-year growth, aligning with market consensus. Simultaneously, the free cash flow profit margin is expected to remain above 25%, providing the company with the momentum to ascend even higher.

With increasingly concentrated market dynamics, Morgan Stanley remains optimistic about Salesforce, viewing it as a long-term winner. Several leading investment banks have raised their target prices; Morgan Stanley has revised its target from $390 to $429, projecting the possibility of the stock reaching $550 under bullish market conditions. Similarly, Goldman Sachs maintains its "buy" rating with a target price of $400, viewing Salesforce as the most strategically valuable application software company, with AI serving as a key growth engine.

However, competition is intensifying as rivals like Microsoft enter the enterprise services market with AI tools like Copilot, posing a direct threat to Salesforce. While Salesforce CEO Marc Benioff questions Microsoft's advancements in customer support automation, Microsoft's reports of Copilot enhancing customer issue resolution by 11.5% and sales efficiency by 9.4% cannot be overlooked. The competition is likely to intensify further.

Furthermore, global IT spending is anticipated to decelerate in 2024, leading some businesses to downsize their SaaS subscriptions. Salesforce's revenue growth in the first quarter of fiscal year 2025 slowed to single digits (8%), causing some market concern. Although there are signs of a demand recovery, unfavorable macroeconomic conditions could still impact ARR (annual recurring revenue) growth.

Overall, despite facing the dual challenges of macroeconomic volatility and fierce competition, Salesforce's internal investment in AI and market consolidation in security offer robust support for its sustainable revenue growth. The future performance remains promising, and investors are encouraged to closely monitor the upcoming financial report to inform investment strategies. The market's response to the report will soon be revealed.