Salesforce's Undervalued Dip: A Strategic Entry Point Amid AI Disruption

Salesforce (CRM) has faced a notable stock decline this year, losing 3.14% in late May alone, even as broader tech markets surged. This divergence raises a critical question: Is the dip a fleeting opportunity to buy a SaaS giant at a discount, or does it signal a structural erosion of Salesforce’s dominance in the CRM space? A fundamental disconnect analysis reveals a compelling case for the former, tempered by competitive pressures that demand strategic caution.

Valuation: A Discounted Multiple, But Not a Write-Off

Salesforce’s EV/EBITDA ratio has plummeted to 23.17x as of May 2025, down 32% from its 5-year average of 34.32x. This multiple now sits below SAP (28.87x) but above Adobe (18.30x), suggesting investors are pricing in near-term uncertainty but not long-term irrelevance. Meanwhile, Microsoft’s EV/EBITDA of 28.87x reflects its Azure/cloud dominance, but Salesforce’s fair price estimate of $415.38—50% above its May 10th price—implies the market has overcorrected.

Key Takeaway: Salesforce trades at a 30% discount to its historical average, offering a margin of safety even if growth slows.

Earnings Trends: Recurring Revenue Holds, But Growth Slows

Salesforce’s TTM EBITDA remains robust at $11.497B, with recurring revenue (representing 80% of revenue) growing 12% YoY—a deceleration from its 20%+ growth in 2020 but still healthy for a $26B+ firm. The dip in stock price, however, has outpaced this slowdown. A 3.14% price drop in late May followed a Q1 earnings miss, but analysts highlight that CRM’s $354–$503 fair price range accounts for moderation, not collapse.

Structural Concern? Not yet. Recurring revenue retention remains stable, and the $1B Singapore expansion underscores confidence in long-term demand.

AI-Driven Competition: Microsoft’s Threat vs. Salesforce’s Response

The real test lies in AI. Microsoft’s Copilot integration in Dynamics 365 and Google’s Agent Development Kit (ADK) for customer service are eroding Salesforce’s traditional moat. Salesforce’s Agentforce 2dx aims to counter this, but execution is critical.

• Valuation Context: Microsoft’s 25.35x forward P/E vs. Salesforce’s 38.4x suggests investors are skeptical of CRM’s ability to monetize AI at scale.
• Risk Factor: Adobe’s P/S ratio of 12.2x (vs. Salesforce’s 6.66x) highlights how AI-driven innovation can command premiums—if proven. Salesforce’s AI revenue remains <5% of total sales, lagging peers.

Key Disconnect: Investors are pricing Salesforce as if it’s losing its core CRM lead, but the firm’s 89% enterprise adoption rate still outpaces rivals. The threat is real, but overblown in the current dip.

The Bottom Line: Buy the Dip, but Set Limits

Salesforce’s valuation is structurally undervalued relative to its cash flows and recurring revenue base. The fair price estimate of $415.38 implies a 50% upside from recent lows, even if growth slows to 8-10%. However, investors must acknowledge the AI execution risk:

• Buy: If Salesforce’s Q2 results show Agentforce 2dx adoption >20% among enterprise clients.
• Hold: Until AI revenue surpasses 10% of total sales, or Microsoft’s Copilot CRM market share exceeds 15%.
• Sell: If recurring revenue growth dips below 8% or it loses its #1 CRM position to Microsoft.

Final Call: The current dip is a buying opportunity for long-term holders, provided Salesforce delivers on its AI pivot. For now, the fundamental disconnect between CRM’s discounted multiples and its entrenched enterprise footprint favors a strategic entry at $275–$300.

Act Now: Salesforce’s valuation is a rare entry point in a SaaS leader. The risk-reward favors buyers—provided they set strict stop-losses if AI fails to materialize.