Salesforce Stock: Undervalued Despite Strong Performance and AI Investments

Salesforce has reported steady Q1 FY2026 results with 8% YoY revenue growth to $9.8 billion, healthy margins, and strong cash flow. The company's AI-powered tools and recurring revenue base continue to expand, and guidance remains steady. Despite a modest growth rate, Salesforce is valued lower than similar companies, offering a compelling setup for patient investors.

Salesforce Inc. (NYSE: CRM) reported strong Q1 FY2026 results, with revenue growing 8% year-over-year (YoY) to $9.8 billion. The company's steady performance was underpinned by healthy margins and robust cash flow. Despite these positive indicators, Salesforce continues to trade at a discount compared to its peers, presenting an opportunity for patient investors.

Financial Performance

Salesforce's Q1 results reflected stability over sizzle. Revenue grew at a modest 8% YoY, with subscription and support revenue rising by the same margin. The company maintained a GAAP operating margin of 19.8% and a non-GAAP margin of 32.3%. Operating cash flow reached $6.5 billion, a 4% increase YoY, and free cash flow followed closely at $6.3 billion. The company returned $3.1 billion to shareholders through buybacks and dividends, demonstrating responsible capital management.

The company's AI-related annual recurring revenue (ARR) has now crossed $1 billion, growing over 120% YoY. Salesforce has closed more than 8,000 deals tied to Agentforce, its AI agent platform, with half already paid. The company expects full-year revenue to grow between $41.0 billion and $41.3 billion, representing 89% growth, and free cash flow to grow by 910% for FY2026.

Valuation and Institutional Confidence

Salesforce's valuation multiples remain notably lower than its peers. Its EV/EBITDA ratio of ~19.7x is nearly half that of Adobe and Intuit, despite similar or superior margin performance and greater product breadth. Institutional investors, including Vanguard and BlackRock, hold over 15% of the company's shares, indicating confidence in its long-term durability. Insider ownership remains stable, with CEO Marc Benioff holding a significant stake.

Competitive Landscape and Risks

While Salesforce dominates the CRM market, its competitors are reshaping expectations. HubSpot, for instance, is growing revenue at over 20% YoY and expanding into the mid-market enterprise. Intuit is expanding its product stack across personal finance, small business accounting, and marketing, touching areas where Salesforce has historically held influence. Adobe's Experience Cloud is gaining ground among CMOs looking for end-to-end campaign management.

Salesforce's traditional growth engines, the Sales and Service Clouds, are showing signs of fatigue, posting mid-to-high single-digit growth rates. The company's effort to expand into AI through products like Agentforce and Data Cloud is promising but still in its early stages. Competitors like Microsoft and Oracle offer bundled AI functionality at scale, while Salesforce is still in the early stages of turning its tools into meaningful revenue.

Conclusion

Salesforce is not broken but is mispriced. The company is executing at scale, sustaining high margins, and returning billions to shareholders. However, the market continues to discount its value due to a less straightforward story for investors. Patient investors may find an undervalued stock with room to surprise, as Salesforce's AI strategy and potential Informatica acquisition could drive significant growth.

References:
[1] https://finance.yahoo.com/news/salesforce-stock-outlook-strong-business-105721461.html
[2] https://theoutpost.ai/news-story/freshworks-raises-annual-revenue-forecast-amid-strong-ai-driven-demand-18406/