Salesforce, Inc. – I am not convinced (Stock Analysis)
Salesforce fails to impress with its Q4 results, and management's commentary makes me skeptical about its growth prospects.
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Salesforce, the undisputed CRM and SaaS enterprise software leader, released its Q4 earnings report on Wednesday, February 26. To be quite blunt, it fell short of expectations. The company disappointed a bit with its headline numbers and guidance, as the impact of AI and Agentforce, in particular, on top-line growth is expected to be slower than anticipated.
In my opinion, this will require a mild expectations reset.
In response, CRM shares shed about 4% during the following trading session. Thus, they are down over 14% so far in 2025, underperforming the broader market, which has at least taken some of the pressure off the valuation. Salesforce shares are now down 15% since I last covered these in early December 2024 and down 9% over the last 12 months, bringing shares down to much more reasonable valuation levels.
Meanwhile, I will admit that Salesforce's bull case is still strong. The company is anticipated to massively benefit from the rise and growing usage of AI, with its large enterprise software presence perfectly positioning it to bring useful AI features to the market within its existing software stack.
Unlike others in the AI value chain, like data center providers, for Salesforce, AI revenues aren’t a promise of the future with questionable demand but are already very much a reality. It is these direct providers of AI software that are most interesting to me, with a clear use case and lesser demand risk. And Salesforce is leading the industry!
Nevertheless, Salesforce is a tough stock to balance between a bullish future and a mild current performance, combined with demanding multiples. As a result, it has remained on my watchlist so far.
On that note, let’s delve into the Q4 results and developments to make up the balance, reconsider the medium-term outlook, and update my target price.
Is now the right time to buy? Let’s find out!
