Salesforce Q4 Earnings Preview: AI Growth, Agentforce Impact, and Market Expectations

Salesforce (CRM) is set to report its fourth-quarter earnings after the market closes, with investors keenly watching for insights into the software sector’s health. The report follows Workday’s (WDAY) strong results, which initially boosted software stocks before fading as sellers emerged. The broader software sector, as tracked by the IGV ETF, had been under pressure with a five-day losing streak, its longest since 2022, before Workday's report temporarily lifted sentiment. Salesforce’s earnings could play a pivotal role in defining the software industry’s trajectory, particularly as Nvidia’s (NVDA) earnings later in the evening may overshadow the market reaction.

Earnings and Revenue Expectations

Analysts expect Salesforce to report revenue of $10.04 billion and earnings per share of $2.61, reflecting an 8 percent revenue increase and 14 percent growth in adjusted earnings per share. While these numbers represent mode$rate expansion, Salesforce’s revenue growth has slowed in recent years compared to its long history of over 20 percent annual gains. Investors will also be focused on operating margins and free cash flow, key indicators of Salesforce’s profitability and ability to return capital to shareholders.

One of the biggest concerns heading into the report is whether Salesforce can sustain its growth trajectory amid slowing enterprise IT spending. The company has aggressively pursued efficiency improvements, with free cash flow reaching 32 percent of revenue in the last fiscal year, up from 24 percent previously. These efforts have allowed Salesforce to implement share buybacks and its first-ever dividend, demonstrating a shift toward a more mature financial profile.

Key Metrics to Watch

Beyond top-line revenue and earnings per share, several key areas will be closely scrutinized:

- Subscription and support revenue growth, which remains Salesforce’s core business and is expected to be a driver of its long-term value.

- Deferred revenue and remaining performance obligations, which provide insight into future revenue trends and customer demand.

- Operating margins, with increasing focus on profitability, any improvements in non-GAAP operating margins could be seen as a positive.

- Free cash flow and shareholder returns, with investors looking for further commentary on buybacks and dividend potential.

Agentforce and AI Strategy

A major theme of this earnings report will be the performance and adoption of Agentforce, Salesforce’s AI-driven automation platform. Agentforce is designed to integrate AI-powered virtual agents into workflows, enabling more efficient customer interactions across multiple departments, including HR, IT services, and supply-chain management.

The AI market represents a significant long-term opportunity for Salesforce, with estimates suggesting the sector could reach a total addressable market of 129 billion in the coming years. Early traction for Agentforce has been promising, with reports indicating strong customer interest and pilot programs ramping up. Notably, Salesforce recently announced an expanded partnership with Google, integrating Google’s Gemini AI into Agentforce. This partnership aims to enhance Agentforce’s capabilities, allowing it to handle more complex customer queries and automate additional tasks.

However, while Agentforce has shown promise, analysts remain divided on its near-term impact. Some believe the AI platform could see a hockey-stick growth trajectory in the second half of 2025, while others argue that monetization will take time, with heavy initial discounts driving adoption rather than immediate revenue acceleration.

The Q3 Performance and Investor Sentiment

Salesforce’s last earnings report was a mixed bag. The company beat revenue expectations by $97.6 million and posted record GAAP EBIT margins of 20 percent, driven by cost-control measures. However, the stock reaction was muted due to an earnings per share miss of $0.03 and concerns over slowing growth in remaining performance obligations, which decelerated to 10 percent year-over-year growth from 14 percent in the prior quarter. Despite this, the stock managed to rally post-earnings as investors focused on strong free cash flow and continued buybacks.

Heading into this report, sentiment is somewhat mixed. The stock is trading around $310, down from recent highs of $369. Some analysts remain bullish, with price targets ranging from $400 to $450, citing AI-driven growth potential. Others, like Guggenheim, have taken a bearish stance, downgrading the stock to sell with a $247 price target, arguing that Agentforce lacks a clear path to significant monetization without acquisitions.

The Competitive Landscape and Risks

Salesforce faces intense competition in the AI space, particularly from Microsoft and Google, both of whom are integrating AI into enterprise applications at scale. Additionally, startups specializing in AI-driven customer support and automation pose a threat to Salesforce’s dominance.

Another risk factor is macroeconomic uncertainty. Enterprise IT budgets remain under pressure, and any signs of slowing demand could weigh on the stock. Additionally, high implied volatility in Salesforce’s options market suggests that traders are bracing for a significant move post-earnings, with an expected stock price swing of around 8 percent.

Conclusion

Salesforce’s earnings report is set to be a crucial moment for the software sector, particularly given recent volatility. With expectations for moderate revenue growth and solid profitability, investors will focus on Agentforce adoption, margin expansion, and overall demand trends. The AI opportunity remains significant, but near-term execution and revenue contributions from AI-driven initiatives will be key in shaping investor sentiment.

While Nvidia’s earnings may dominate headlines, Salesforce’s report will be just as important for understanding the broader tech sector, as software remains the heaviest-weighted group in the Nasdaq. If Salesforce can deliver strong numbers and a positive outlook, it could help stabilize software stocks after recent weakness. However, any disappointment, particularly in AI monetization or forward guidance, could exacerbate selling pressure in the sector.