Salesforce (CRM 0.65%) has been struggling to prove to investors that its business can thrive due to artificial intelligence (AI) rather than suffer from it. CEO Marc Benioff has boasted of his company's Agentforce platform, which leverages AI agents to help companies do more with less and benefit from AI capabilities. Investors, however, haven't been buying it. This year, the stock is down more than 30%.
This week, however, the company reported some encouraging numbers that beat expectations. Could this be proof that the business really isn't in as bad a shape as its share price might suggest? Is now a time to load up on Salesforce's stock?
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Revenue and profit were better than expected in Q1, but guidance was underwhelming
On Wednesday, Salesforce posted its first-quarter results for Fiscal 2027, for the period ending April 30. Its revenue for the quarter totaled $11.13 billion, coming in slightly above analyst expectations of $11.05 billion, with the top line rising by 13% year over year. Its adjusted per-share profit of $3.88 was a much stronger beat, as Wall Street was expecting just $3.12.
While its earnings guidance for the current quarter was in line with analysts' expectations, projected revenue of $11.27 billion to $11.35 billion falls just outside the $11.36 billion analysts were looking for. This is particularly underwhelming as the company says annual recurring revenue from Agentforce has risen by 205% and is now at $1.2 billion. Even with AI-powered growth, the tech company is not doing enough to impress analysts.
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Is Salesforce stock too cheap to pass up right now?
Although its guidance may not have been what the market was expecting, Salesforce's stock may be priced at a low enough level where it's worth buying anyway. Based on analyst projections of future profits, it's trading at a forward price-to-earnings multiple of 13, which is well below the S&P 500 average of 22.
It's certainly a cheap buy, but the question is whether Salesforce has become a value trap. AI is making software more useful and powerful, and if there's less of a need to use Salesforce for customer relationship management, the business may encounter greater headwinds in the future.
Ultimately, I don't think Salesforce has done enough to prove that AI will have a positive impact on its long-term growth. Agentic AI is still in its early stages, and companies may have more alternatives beyond Salesforce to turn to. For now, I'd pass on the stock, even though its valuation may look cheap.
