Salesforce's Surge Signals SaaS's Turnaround—Time to Buy Before the Rally!

MarketPulseThursday, May 29, 2025 4:31 pm ET
4min read

The SaaS sector has been a rollercoaster for investors, but Salesforce's latest earnings report is a neon-green arrow pointing upward. This isn't just about Salesforce—it's about the entire software landscape. Let's dissect the numbers, the trends, and where to position your portfolio now.

Salesforce's Earnings: A Blueprint for SaaS Resilience

Salesforce's Q2 fiscal 2025 results were a masterclass in execution. Revenue hit $9.33 billion, up 8% YoY, with subscription revenue soaring 9%. But here's the kicker: margins are exploding. Non-GAAP operating margins hit 33.7%, a 210-basis-point jump from last year. This isn't just cost-cutting—it's a sign of a company dominating its market.

AI is the secret sauce. Salesforce's Agentforce platform—which automates customer interactions using its Data Cloud—is already delivering results. Customers like OpenTable saw 90% faster case resolution, while Wiley boosted customer satisfaction by 50%. This isn't vaporware; it's revenue-generating tech, and investors are noticing.

The key metric here is cRPO—Current Remaining Performance Obligation—up 10% YoY to $26.5 billion. This is cash already booked for future revenue. Salesforce isn't just selling software; it's locking in multi-year contracts, proving sticky customer relationships.

Why Salesforce's Win Matters for the Entire SaaS Sector

Salesforce's results aren't an outlier—they're a barometer for SaaS's health. Let's look at the sector's trends:

  1. Valuations Are Stabilizing—But Still Cheap!
    The median EV/Revenue multiple for public SaaS companies is now 7.6x, up from the post-2021 slump but still 60% below 2021's peak. This means companies are undervalued relative to their profitability. Salesforce trades at 7.1x EV/Revenue, a steal given its margin expansion.

  1. Profitability Is the New Black
    Public SaaS companies are finally hitting breakeven. Median EBITDA margins hit 6% by Q3 2024, and net margins are turning positive. Salesforce's 23%–25% operating cash flow growth guidance shows this isn't a fluke—it's a sustainable trend.

  2. AI Is the Catalyst—But Only for the Strong
    Not all SaaS firms can pull off AI like Salesforce. Companies with proprietary data (like Salesforce's Data Cloud) and integration into existing workflows are winning. Microsoft's Azure AI revenue hit $13 billion annual run rate, and Adobe's AI-driven Creative Cloud is flying. The weak? They're getting eaten alive by competition.

Actionable Investments: Buy These SaaS Leaders Now

This isn't a sector to play with ETFs—pick the winners.

  1. Salesforce (CRM):
    The king of CRM is still the king. Buy now at $230/share—15% below its 2021 high—but with 32.8% operating margins ahead.

  2. Microsoft (MSFT):
    Azure's 31% revenue growth isn't just cloud—it's AI-driven enterprise software. This is a buy-and-hold for the next decade.

  3. Adobe (ADBE):
    Creative Cloud's AI tools (hello, Firefly!) are priced for growth. Adobe's Rule of 40 score (growth + margins) is off the charts—this stock is underappreciated.

  4. Under-the-Radar Plays:

  5. Freshworks (FRSH): NRR of 110–115% and geographic diversification (40% revenue outside North America) make it a hidden gem.
  6. ServiceNow (NOW): Its AI for IT ops is a must-have for enterprises—valuation at 5.8x EV/Revenue is a steal.

Risks? Sure—But the Upside Outweighs Them

Yes, SaaS faces headwinds:
- Slowing macro growth could curb enterprise budgets.
- Interest rate volatility could spook multiples.
- AI hype vs. reality: Companies without proprietary tech will crater.

But here's the deal: Salesforce's 10% cRPO growth, Microsoft's $13B AI run rate, and Adobe's Creative Cloud dominance are real, tangible results. This isn't 2021 FOMO—it's value investing with a tech twist.

Final Call to Action: The SaaS Rally Is Here—Don't Miss It

The SaaS sector's valuation reset is complete. Salesforce's earnings show that companies with AI at their core, fat margins, and sticky contracts are the future.

Buy Salesforce now—the stock is primed to outperform. Pair it with Microsoft and Adobe for a full-stack SaaS portfolio. And don't sleep on underdogs like Freshworks.

This isn't a sector to dabble in—it's a once-in-a-decade opportunity. The only question is: Will you be on the bus when it leaves the station?

Disclaimer: This is not financial advice. Consult a professional before making investment decisions.

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