Salesforce’s soft guidance gives the skeptics more fuel. Here’s why we are hanging on

Published: Wednesday, September 3, 2025 · 11:29 PM  |  Updated: Wednesday, September 3, 2025 · 11:29 PM

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Salesforce on Wednesday reported better-than-expected second quarter results, but the stock sold off in extended trading due to concerns about soft third-quarter revenue guidance and lack of upside in the full-year outlook. Revenue in its fiscal 2026 second quarter rose 10% year over year to $10.24 billion, topping expectations of $10.14 billion, according to LSEG. Adjusted earnings per share (EPS) in the three months ended July 31 totaled $2.91, beating the consensus estimate by 13 cents, LSEG data showed. On a year-over-year basis, adjusted EPS was up 14%. Shares fell more than 5% in after-hours trading to around $242, extending what has been a tough stretch for shareholders since the company reported its fiscal fourth quarter results in February. Still, it’s not the worst level the stock has traded this year. It closed at a low of about $231 in mid-August. CRM YTD mountain Salesforce’s year-to-date stock performance. Bottom line Across nearly every metric, Salesforce’s second quarter results were better than expected. Unlike the first quarter, sales in the software giant’s three largest applications, which it calls “clouds,” were better than expected. Those are Sales Cloud, Service Cloud and Platform & Other. Also the company’s operating margins — on both a generally accepted accounting principles (GAAP) basis and when adjusting for items such as stock-based compensation and severance costs — exceeded the consensus estimates. While it’s true that growth in two metrics relating to its future revenue pipeline — remaining performance Obligation (RPO) and current remaining performance obligation (cRPO) — decelerated from the first quarter, both metrics exceeded the consensus forecast and remained in double-digit growth territory. That’s notable because investors want to see its topline expansion eventually return to that level. As for its important new product Agentforce, we liked how the AI-powered platform has closed more than 12,500 deals since its launch three quarters ago, and over 6,000 of these are paid. Some of the big deal wins in the quarter were Dell Technologies , FedEx , Marriot Bonvoy, Anthropic, fellow Club name Eaton , Williams-Sonoma , and Reddit . “We’re seeing an incredible transformation of every enterprise into becoming an agentic enterprise,” CEO Marc Benioff told Jim Cramer on “Mad Money” on Wednesday night. Why we own it Salesforce is a leading enterprise software tool for companies across all industries, helping employees to better communicate with colleagues internally and with their customers. The company’s balance of margin expansion with the potential for faster topline growth — aided by AI adoption — should lead to strong earnings growth. Competitors : SAP , Microsoft , HubSpot Most recent buy : March 5, 2025 Initiation : June 15, 2018 Later on the conference call, Benioff noted that 40% of its Agentforce new bookings this quarter “came from existing customers extending their investment with Salesforce, and it’s demonstrating the value that they’re getting and how the flywheel is really working.” The company’s annual recurring revenue from “Data Cloud and AI” — a grouping that includes Agentforce — reached $1.2 billion in the quarter, up 120% year over year. In late May, Salesforce disclosed a more than $1 billion ARR. This is a sign of continued strong adoption of Salesforce’s AI products. Additionally, on capital returns, the company bought back $2.2 billion worth of stock in the quarter. It may not be as much as the $2.7 billion it spent one quarter ago, but the company said the board also approved a $20 billion expansion to its authorization. What matters is that the buybacks are not stopping as the company waits for the $8 billion Informatica deal to close. The company expects the deal to close in the fourth quarter of fiscal year 2026 or early in fiscal year 2027. That’s what we liked. What we didn’t like was how the third-quarter revenue guide at the midpoint was slightly below the consensus estimate; the full year constant currency revenue growth outlook was left unchanged; and management lowered its full-year GAAP operating margin guidance, although management said this inclusive of additional restructuring charges, which include severance payments. In a recently published podcast interview, Benioff said Salesforce’s customer support team was reduced by 4,000 roles thanks to AI agents taking over their roles. We should note that the full-year non-GAAP adjusted margin outlook was tweaked slightly higher. In his interview with Benioff, Jim asked the CEO about the company’s guidance versus expectations. Benioff defended the outlook, saying in part: “Maybe I’m just being too conservative. I think I’m being appropriately conservative, but I’ve always been that way for 26 Years.” Indeed, we don’t think the results here are all that bad, especially in the context of a stock that has dropped about 23% this year before factoring in its after-hours slide. But the key for the stock to get back to its historical market-beating ways is for revenue growth to reaccelerate back to at least 10% year over year and operating margins — on both a GAAP and non-GAAP basis — to trend higher. We still think Agentforce’s contribution has this potential to boost topline performance and ongoing cost discipline should help margins over time. However, the results here aren’t enough to silence the bears who believe the traditional seat-based software-as-a-service business model has peaked and is being disrupted by advancements in AI. It’s disappointing to continue to wait, but we’re not ready to jump ship on this small position just yet with the stock trading at 22 times forward earnings What could change the perception around the company, in a positive way, is the company’s annual San Francisco-based Dreamforce conference in mid-October. That proved to be a major catalyst last fall, helping the stock return to record highs before topping out in early December. Until then, we’re reiterating our hold-equivalent 2 rating, while lowering our price target to $300 a share from $350 to account for ongoing price-to-earnings multiple compression related to skepticism in the marketplace around Salesforce’s growth trajectory. Guidance As mentioned, Salesforce’s third-quarter outlook came in slightly worse than expected, according to estimates compiled by FactSet. Here’s a closer look at the Q3 guidance: Revenue in the range of $10.24 billion to $10.29 billion. This midpoint of $10.265 billion was a miss against the $10.29 billion consensus. GAAP earnings per share in the range of $1.60 to $1.62, which is well below the consensus estimate of $1.81. Adjusted EPS in the range of $2.84 to $2.86 a share, in line with the $2.85 estimate. Current remaining performance obligation (cRPO) growth of slightly above 10%, or 9% on a constant-currency basis. The FactSet consensus called for about 10% cRPO growth, so we’ll call this in line to maybe some slight upside. For the full year, Salesforce nudged up the low end of its full-year revenue outlook and now expects $41.1 billion to $41.3 billion in the 12 months ending in January. That translates to 8.5% to 9.5% growth on an annual basis. However, the update looks mostly currency driven, with Salesforce leaving its 8% year-over-year growth in constant currency guidance unchanged. Elsewhere, it was disappointing to see the company lower its GAAP operating margin guide to 21.2% from 21.6%, reflecting an increase in restructuring charges, while the adjusted operating margin outlook was increased to 34.1% from 34%. The changes to the margin forecast resulted in Salesforce lowering its GAAP EPS outlook for the year, but increasing its non-GAAP outlook for the year. The new adjusted guide moved to $11.33 to $11.37, which at a midpoint of $11.35 was slightly better than the consensus. The company also increased its operating cash flow growth guide to 12% to 13%, which is up from 10% to 11%, and it raised its free cash flow guide also to 12% to 13% from 9% to 10%. (Jim Cramer’s Charitable Trust is long CRM. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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