Salesforce’s Q1 Earnings: Catalyst for Revaluation or More of the Same?

Salesforce (CRM) is set to release its Q1 FY2026 earnings on May 28, 2025, a critical moment for investors to reassess the software giant’s trajectory. With revenue guidance of $9.71–$9.76 billion and EPS estimates at $2.54, the report will test whether Salesforce can sustain momentum in a crowded tech landscape—or if it’s merely treading water. This analysis dissects the implications for valuation, strategy, and investor action.

The Numbers Game: Revenue and EPS Expectations

Salesforce’s Q1 revenue guidance of $9.74 billion (consensus) reflects a 6.6% year-over-year growth rate, modest by its historical standards (which averaged 17% over the past five years). Analysts highlight two key questions:
1. Can AI-driven segments offset slowing traditional sales? The Data Cloud & AI unit, which grew 120% year-over-year in FY2025, is now core to Salesforce’s narrative. If Q1 shows that AI products like Agentforce (3,000 paying customers in 90 days) are driving meaningful revenue, it could justify a valuation upgrade.
2. Will foreign exchange headwinds persist? A $300 million FX drag in Q4 FY2025 suggests lingering macro risks, which could weigh on top-line growth.

Meanwhile, non-GAAP EPS of $2.54 (consensus) hinges on margin expansion. Salesforce’s Q4 non-GAAP operating margin hit 33.1%, up 170 bps year-over-year, thanks to cost cuts (e.g., office space reductions, workforce trimming). If Q1 margins hold or improve, it would validate the cost discipline now central to its strategy.

AI and Acquisitions: Driving Growth or Overhyped?

Salesforce’s bet on AI—via tools like Einstein GPT and acquisitions like Spiff (sales automation) and Zoomin (generative AI)—is its best chance to reignite growth. The Data Cloud unit’s 120% year-over-year revenue surge in FY2025 is a promising start, but Q1 results will reveal whether this momentum is scalable.

Critics argue that Salesforce’s AI push is a response to competition from Microsoft (via Dynamics 365) and Oracle (with CX Cloud). To stand out, Salesforce must prove that its AI tools aren’t just incremental upgrades but revenue-generating differentiators. The Q1 report will clarify whether customers are paying premiums for these features or viewing them as table stakes.

Margin Improvements and Cost-Cutting: Sustainable or Temporary?

The company’s 33.1% non-GAAP operating margin in Q4 FY2025 marks a turning point. CFO Amy Weaver has emphasized that cost discipline—not just revenue growth—is key to long-term value. Investors will scrutinize Q1’s operating margin to see if it holds near 33% or climbs further.

However, risks linger. Salesforce’s professional services segment grew just 1% year-over-year in Q4, underscoring reliance on partner ecosystems. If services remain stagnant, the margin gains could be offset by a drag on top-line diversification.

Valuation: A Buying Opportunity or Justified Discount?

Salesforce trades at a forward P/S of 6.48X, sharply below peers like SAP (8.38X) and Oracle (6.77X). This discount reflects skepticism about its ability to compete in an AI-obsessed market.

Bulls argue the discount is irrational. Salesforce’s $60 billion+ RPO (recurring revenue backlog) and AI-driven growth could justify a re-rating. A Q1 beat on AI revenue or margin expansion might trigger a rerun of its 2023 rebound, when it surged 50% after earnings.

Risks and the Competitive Landscape

• Microsoft’s shadow: Azure-driven CRM solutions and LinkedIn’s integration threaten Salesforce’s dominance in enterprise software.
• Sector headwinds: Tech spending remains uneven. Salesforce’s public-sector focus is a plus, but private-sector clients in tech/energy are still cautious.
• Execution over hype: If Q1 shows AI adoption isn’t translating to revenue, Salesforce’s stock could slump further.

Conclusion: Time to Bet on Salesforce?

Salesforce’s Q1 earnings are a pivotal moment. A strong showing in AI revenue, margin resilience, and FX stability could narrow its valuation gap with peers—potentially unlocking a 35% upside to the $361 price target. Conversely, a miss would reinforce skepticism about its reinvention.

For investors, the call hinges on this: Is Salesforce’s AI strategy a sustained growth lever or a PR exercise? The earnings report will provide the clearest clues yet. With a low valuation and high upside potential, now is the time to position for what could be a turning point for CRM.

Act now or risk missing the next leg of this story.