Customer relationship management software-as-a-service specialist Salesforce (CRM +2.36%) is slated to report fiscal fourth-quarter results after market close next Wednesday. Going into the report, many investors are likely wondering if now is a good time to buy shares of the tech company, given that the stock has been beaten down this year. Year to date, shares are down more than 30% as many software stocks have been punished amid fears that AI (artificial intelligence) will be a disruptive force.
So, is Salesforce stock a buy ahead of earnings? While there's no way to know how the stock will move when the company reports fiscal fourth-quarter results on Feb. 25, we can at least take a look at the stock to see if shares look attractive today as a long-term investment based on the information we have. After all, the company pitched AI as an accelerant for its business in its most recent earnings call, not an impediment. So, perhaps the market has the story wrong?
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AI opportunities
Defining itself as the number one AI customer relationship management platform in the world, the biggest way the company is tapping into the power of AI is through agentic AI, or the implementation of autonomous systems designed for complex tasks with limited human supervision.
In its fiscal third-quarter earnings call, Salesforce CEO Marc Benioff said that the company is "bringing humans, data, AI, [and] apps together to build the agentic enterprise." Later in the call, he said that Salesforce has "rebuilt all of our products to deliver this agentic enterprise," and he noted that the company is "really just getting going."
The best way to exemplify Salesforce's momentum in AI is through Agentforce, an enterprise platform for creating and customizing AI agents using a low-code builder, and its cloud-based data platform, Data 360, which powers Agentforce.
"Our Agentforce and Data 360 products are the momentum drivers, hitting nearly $1.4 billion in [annual recurring revenue] -- an explosive 114% year-over-year gain," said Benioff in the company's fiscal third-quarter earnings release. "We now have over 9,500 paid Agentforce deals and 3.2 trillion tokens processed, underscoring our leadership in building the Agentic Enterprise and driving real outcomes."
Even more, Salesforce has been able to integrate AI into its business and build out new growth levers while growing its free cash flow at a strong double-digit rate. Salesforce's fiscal third-quarter free cash flow was $2.2 billion, up 22% year over year.
While Salesforce is still in the early innings in capitalizing on opportunities like these in AI, we have enough data to know there is great promise.
What investors need to see
While it's exciting to see so much momentum in agentic AI at Salesforce, investors may need to see these new catalysts pay off more materially in the company's consolidated results before they begin to buy into its ability to thrive in an era of AI.
Salesforce's fiscal third-quarter revenue grew 9% year over year, or 8% in constant currency. This was a deceleration from 9% constant-currency growth in fiscal Q2. If the company's consolidated top-line growth rate doesn't inflect, investors may fear that Salesforce's AI offerings are just cannibalizing its core offerings.
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Key Data Points
Chances are, however, that Salesforce's AI services are at least somewhat additive to its business. But it just may take time for these catalysts to become large enough to have a material impact on the company's growth rate. However, momentum is evident in the company's current remaining performance obligations (cRPOs), or its future revenue under contract expected to be recognized as revenue in the next 12 months. Salesforce's constant-currency growth rate of its cRPOs rose 11% year over year in fiscal Q3 -- an acceleration from 10% constant-currency growth in fiscal Q2. This bodes well for a potential top-line acceleration, as long as the company can keep up this momentum in cRPOs and successfully convert this contracted revenue into realized revenue.
So, is Salesforce a buy on this dip?
Before deciding, I'd personally prefer to wait until the company's upcoming earnings report to get more insight into whether or not AI is translating into a material tailwind for the company. After all, it's always possible that new headwinds develop, too. The reality is that there is a lot of uncertainty right now about how companies will fare in an era of AI, so it doesn't hurt to exercise some caution and to stay on the sidelines until there is either more information or the stock becomes too cheap to pass up.
