Salesforce's Undervalued Dividend Play: A Confluence of Pricing Power and AI Growth

Eli GrantMonday, Jun 23, 2025 2:01 pm ET
146min read

Salesforce (CRM) has long been a bellwether for enterprise software innovation, but its recent dip to near $260—just above its 52-week low of $212—has created a rare opportunity for investors. Beneath the market's myopic focus on short-term volatility lies a company with pricing power, AI-driven revenue acceleration, and a dividend machine that's underappreciated. Here's why the current valuation is a mispricing waiting to be corrected.

Strategic Pricing Power: Margin Expansion Meets Market Leadership

Salesforce isn't just surviving—it's thriving. Over the past year, the company has incrementally raised prices across its CRM, Service Cloud, and Einstein AI platforms, capitalizing on its position as the de facto standard for enterprise software. These price hikes, which average 5-7% annually, are not merely cost-pass-through measures but reflections of Salesforce's ability to command premium pricing.

This pricing discipline is paying off. Gross margins have expanded by 200 basis points over the past five years, even as the company invests heavily in AI. With a $29 billion annual revenue run rate, even small margin improvements translate into substantial profit growth. Meanwhile, the recent dip in stock price has created a price-to-cash flow multiple of 15x, a discount to its five-year average of 18x. This is a critical inflection point.

The AI/Data Cloud Catalyst: 120% YoY Growth and a $10B Market Play

Salesforce's Data Cloud and Einstein AI divisions are now its fastest-growing segments, collectively delivering 120% year-over-year revenue growth in 2024. These platforms aggregate and analyze vast troves of customer and operational data, offering clients predictive analytics, personalized marketing, and automated workflows.

The Data Cloud, which now houses over 10 billion records from 250,000 companies, has become a moat-widening asset, reducing switching costs for clients. Meanwhile, Einstein's integration with Salesforce's CRM suite has made it indispensable for businesses seeking AI-driven decision-making. With $1.2 billion in R&D spending annually, Salesforce is doubling down on these technologies, positioning itself to capture the $10 billion AI infrastructure market by 2.026.

Dividend Safety and Buybacks: A Double-Barreled Tailwind

Salesforce's dividend, while modest at 0.6% yield, is a testament to its financial discipline. The payout ratio remains comfortably below 30%, even as free cash flow hit $5.7 billion in 2023, up 15% year-over-year. The company's June 18 dividend declaration of $0.416 per share, a 6% increase from 2023, underscores its commitment to rewarding shareholders.

Meanwhile, Salesforce is aggressively reducing its float through buybacks. Over the past three years, shares outstanding have declined by 3%, and with $5 billion remaining on its buyback authorization, this trend will continue. A smaller float amplifies the impact of earnings growth on per-share metrics—a key driver for a stock price rebound.

The Q3 Catalyst: Pricing Power Meets Earnings Beats

The critical inflection point arrives in Q3, when Salesforce will report results reflecting its 2024 price hikes. Analysts expect revenue growth of 8-10%, but the true upside lies in margin expansion. With pricing discipline and AI-driven efficiency gains, operating margins could hit 28%, up from 25% in 2023.

Analysts' average price target of $346 (a 33% upside from $260) isn't just a number—it's grounded in Salesforce's $12 billion addressable market in AI and its $20 billion Data Cloud pipeline. The stock's current dip is a function of macroeconomic jitters, not fundamentals.

The Bottom Line: A Rare Entry Point for Long-Term Investors

Salesforce's near-$260 price is a historical bargain, particularly when considering its dividend growth, margin leverage, and AI-driven moat. While short-term traders might focus on the $212 52-week low, long-term investors should see this as a generational opportunity.

Recommendation: Buy Salesforce now. The dividend offers stability, while the AI/Data Cloud tailwinds and Q3 earnings beat set the stage for a multiyear upward trajectory. With a target of $346 by 2026, the risk-reward is skewed heavily in favor of bulls.

Andrew Ross Sorkin style tip: Balance data-driven analysis with a contrarian edge, emphasizing that mispricings like this don't last—especially when a company's fundamentals are as robust as Salesforce's.

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