The first half of 2026 was a tough time for software stock investors. The sector experienced a massive sell-off, with top names, including Salesforce (CRM +2.92%), dropping sharply as fears of AI displacing enterprise software led many investors to reevaluate the segment's top stocks.
Salesforce CEO Marc Benioff told investors this isn't the first so-called "SaaSpocalypse" he's seen in his tenure as head of the leading enterprise software company. He called it "a great buying opportunity" during the company's fourth-quarter earnings call in February and thanked the board for authorizing a $50 billion share repurchase program, including a $25 billion accelerated repurchase. He executed within weeks, issuing debt and buying back the stock in a massive bet on the company.
And now it's paying off. Salesforce's share price is up 38% since the end of March, getting another leg up with the company's second-quarter earnings report in late August. Investors wondering if they missed the opportunity to buy the SaaS stock could be in luck. It still looks like an incredible opportunity, given several key announcements in the company's earnings report.
Image source: Getty Images.
Did Salesforce just put the AI fears to bed?
Salesforce reported solid earnings for the second quarter, but investors will need to dig a little deeper to understand what drove the market to push the stock price up more than 20% after the news.
First, the company reported revenue at the top end of its guidance and saw remaining performance obligations grow at 11%. Current remaining performance obligations climbed 14%, giving credence to management's standing projection that it'll experience revenue acceleration in the back half of 2026. That's further supported by management's guidance, which included a raise in its full-year revenue outlook.
More encouraging is that the revenue growth is being driven by artificial intelligence (AI). "We're seeing incredible demand for our AI and data products, with [annual recurring revenue] about to cross $4 billion," Benioff said in the press release. That's a 210% increase in AI-related revenue year over year.
NYSE: CRM
Key Data Points
Building on that, it announced a partnership with Anthropic and introduced Claudeforce. The first set of products in Claudeforce will enable users to take actions right from a Claude chatbot window. It allows a Claude agent to access data within Salesforce and enables users to create apps and uncover answers buried in company data without any user interface constraints. It's also integrating Claude deeper into Agentforce and Slack.
The partnership reinforces Benioff's assertion that Salesforce's integration with businesses and its ability to collect and store enterprise data are essential, and the company's software will serve as an important layer that large language models can work on top of.
Salesforce is spending heavily on developing and marketing its AI efforts, though. That resulted in operating margin compression and a slight downward revision in full-year operating margin. Generally accepted accounting principles (GAAP) operating margin is now expected to come in at 20.1% for the full year, but non-GAAP operating margin remains unchanged at 34.3% for the year.
Is it too late to buy Salesforce?
Despite the big jump in the stock price, Salesforce stock still looks cheap relative to its growth potential. Management may provide another update to its long-term growth targets later this month, but last year, it suggested it could grow revenue at a double-digit rate through the end of the decade while expanding the adjusted operating margin to about 40%.
The most recent earnings results should put some doubts about its potential growth to rest, but the market still fears that management is overly optimistic. That's why shares trade for just 16 times earnings expectations.
But even if management proves somewhat overly optimistic, the stock can still climb higher from here. As AI-related revenue becomes a bigger part of the business, it strikes more deals like Claudeforce, and revenue continues to compound at a double-digit rate, it should see some operating leverage as it scales its AI efforts. That should support strong organic earnings growth.
Meanwhile, the company is generating billions in free cash flow every year. That cash is used for additional acquisitions to bolster growth, with the rest going toward share repurchases. There's still about $23 billion of its $50 billion repurchase authorization remaining. That should push earnings-per-share growth even higher.
With a solid business that's proving to be a beneficiary of AI more than a victim of it, investors may still be undervaluing Salesforce right now.
