Salesforce Faces Reality Check After AI-Driven Jump to Record

(Bloomberg) -- Salesforce Inc.’s big push into artificial intelligence has helped drive shares to a record high. Now, Wall Street wants proof that the heavy spending is going to pay off.

The maker of customer relations management software is due to report results after the close, with investors particularly focused on any comments on AI-related trends going forward. Salesforce (CRM) launched its Agentforce generative AI product in October, and has been hiring aggressively to sell the tool, which can complete tasks like customer support without human supervision. It also recently acquired Tenyx, a developer of AI-powered voice agents.

“Agentforce has overtaken the CRM narrative by storm with a marketing/product release blitz and positive but early partner feedback,” wrote Citi analyst Tyler Radke. The results could offer “a reality check” after the stock’s roughly 30% gain since Salesforce’s annual Dreamforce event in September, he said.

Shares fell 0.4% on Tuesday.

While AI has been a major driver of Wall Street gains for almost two years, the biggest revenue boost has been at chipmakers like Nvidia Corp. and cloud-computing companies like Microsoft Corp. Investors are betting that software will be the next group to benefit in a big way, and Salesforce is a popular candidate to show upside. The company has long focused on the technology and optimism around Agentforce is especially strong.

“We see the new AI suite as being one of the most transformational to a large business as any we’ve seen,” wrote Eric Clark, portfolio manager of the Rational Dynamic Brands Fund, in emailed comments. “The market will be very pleased when they see the adoption rates over the next three years.”

Still, the rollout and initial usage of Salesforce’s AI products could be lumpy, he said, recommending investors use any share-price volatility as a buying opportunity. In three years time, “the stock will look much cheaper than it does now once we see the revenue, margin, and EPS ramp,” he added.

The third-quarter results come after a tumultuous year for the shares, which plunged in May following a weak sales growth forecast which underscored concerns that it was getting left behind in AI. The stock has climbed more than 50% since then, and its most recent results were well received, with an estimate-beating outlook driven by cost cutting.

While the shares have recovered, analysts haven’t yet boosted their estimates in a big way. The consensus estimate for the company’s net 2025 earnings is basically unchanged over the past quarter, the period over which the management team began to talk up the new AI tools. The forecast for revenue is similarly flat over that period, according to data compiled by Bloomberg.

The combination of share-price gains and static estimates has pushed Salesforce’s valuation higher. The stock trades around 30 times estimated forward earnings, up from an all-time low of 21 in May. It’s also now more expensive than the Nasdaq 100 Index’s multiple of almost 27.

Still, if Salesforce is able to show investors that Agentforce and other AI products will begin to provide a big tailwind next year, the shares may be able to continue on their hot streak.

Feedback for the technology has been good, according to JPMorgan’s most recent quarterly survey of Salesforce partners. “Agentforce captivates customers, highlights the art of the possible in AI,” analysts including Mark Murphy wrote, adding that the product debuted with the joint-highest all-time score among Salesforce products in the survey.

For this quarter, however, expectations may be too high, according to Murphy. “Agentforce, while a critical development, is unlikely to materially move the needle on revenue growth for about a year,” he wrote.

“It isn’t uncommon to see some backing and filling around earnings reports when excitement has mounted for an AI product cycle.”

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