Shares of enterprise software giant Salesforce (CRM +2.40%) have been under pressure early in 2026. And with the company reporting its fourth-quarter and full-year fiscal 2026 results after market close on Wednesday, it may be tempting to buy now and hope for a rebound following what will hopefully be a strong fiscal fourth-quarter update. After all, if results and guidance land ahead of expectations, the stock could rip higher.
But I'm still not buying, and it's not because I'm trying to time the quarter. My issue is longer-term: Salesforce's (1) stock-based compensation is still heavy relative to its growth profile, and (2) AI (artificial intelligence) is changing the software landscape in ways that make it harder to predict durable profit margins and pricing power over the long haul.
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Hefty stock-based compensation
Of course, my reasoning for staying on the sidelines doesn't mean Salesforce's business isn't doing great. It is. In the software-as-a-service company's third quarter of fiscal 2026 (ended Oct. 31, 2025), revenue rose 9% year over year to $10.3 billion, and free cash flow was $2.2 billion, up 22%.
But the stock-based compensation line is the part I can't get past.
In that same quarter, Salesforce reported $805 million of stock-based compensation expense (excluding stock-based compensation tied to restructuring). That is roughly 8% of quarterly revenue. For comparison, Alphabet, a faster-growing tech company, saw its stock-based compensation equal about 6% of revenue in 2025.
Sure, Salesforce can afford it. But shareholders still pay for it one way or another. If the company issues stock to employees, each share represents a slightly smaller claim on the business over time.
That said, the company has been repurchasing its shares to more than offset the dilution from stock-based compensation. In Q3, it returned $4.2 billion to shareholders, including $3.8 billion in share repurchases and $395 million in dividends. This is a decent quarterly sum for a company that has a market capitalization of about $170 billion.
Still, I'd prefer to see Salesforce operate more frugally with its equity, since the company isn't the fast-growing tech company it used to be.
NYSE: CRM
Key Data Points
AI is exciting, but it introduces uncertainty
Salesforce, of course, is leaning hard into AI. And the company seems to be seeing promising results.
In its most recent earnings call, management specifically called out momentum in its AI-based products. Agentforce, Salesforce's enterprise platform for the creation of AI agents, and Data 360's (the cloud-based data platform powering Agentforce) annual recurring revenue, for example, reached nearly $1.4 billion, up 114% year over year, and the company said it processed more than 3.2 trillion tokens through its large language model (LLM) gateway.
The risk, however, is that AI intensifies competition while simultaneously lowering margins. Even if AI drives more demand, it can also introduce new costs to serve customers. And it can make it easier for larger competitors to use AI to upsell bundled features or narrow product gaps.
That uncertainty would be easier to accept if the stock clearly offered a big margin of safety. But with revenue growth in the high single digits (not the double digits), I want more clarity on what the "steady state" will look like for Salesforce as AI becomes more central to the platform. Sure, the stock doesn't look expensive with its price-to-earnings ratio currently around 24, but it's arguably not cheap enough either -- at least given the uncertain environment.
Of course, by not buying the stock before earnings, I may miss out if the company reports better-than-expected results and management shares impressive guidance. But that's OK with me. I'd rather wait for more clarity or an even lower price before considering buying the stock.
