Salesforce: AI Monetization Is Clearly Happening Whether Investors Accept It Or Not

Salesforce (CRM) exceeded Q2 revenue and EPS estimates, reporting $10.24 billion (+9.8% y/y) and $2.91 (+13.7% y/y) respectively, alongside strong operating margin expansion. While Q3 revenue guidance disappointed the market, the company raised its full-year FY26 EPS and free cash flow growth outlook. Crucially, the quarter demonstrated accelerating AI monetization, with Agentforce deals significantly expanding and Data Cloud/AI ARR reaching $1.2 billion (+120% y/y), driving double-digit growth in the Subscription & Support segment. Despite recent stock underperformance and market skepticism regarding AI pace, the company's valuation remains attractive relative to peers and historical averages, leading the analyst to maintain a "BUY" rating with a dollar-cost averaging recommendation due to current momentum challenges.

Analysis

Salesforce (CRM) reported a strong Q2, exceeding analyst expectations with revenue of $10.24 billion (+9.8% y/y) and non-GAAP EPS of $2.91 (+13.7% y/y). The company demonstrated significant operational leverage, expanding non-GAAP operating margins by 200 bps sequentially to 34.3%. Despite this performance, the market reacted negatively to Q3 revenue guidance that fell short of consensus. However, the full-year FY26 outlook was strengthened, with raised non-GAAP EPS guidance to a range of $11.33-$11.37 and an increased free cash flow growth projection of 12%-13%. A critical takeaway is the tangible progress in AI monetization, a key area of investor skepticism. The core Subscription & Support segment returned to double-digit y/y growth for the first time in five quarters, while Data Cloud and AI ARR grew 120% y/y to $1.2 billion. Furthermore, the adoption of its flagship AI tool is accelerating, with Agentforce deals increasing to over 12,500 in Q2 from 8,000 in Q1. From a valuation perspective, CRM appears heavily discounted, trading at a forward P/E of 20.5x, significantly below its 5-year median of 29.3x and its peers. This valuation disconnect exists despite improving fundamentals and does not yet factor in potential synergies from the Informatica acquisition, expected to close in Q4 FY26.

Key Decisions for Investors

• Investors should consider the disconnect between the stock's poor momentum and its strong fundamentals, including a raised FY26 EPS and FCF growth outlook, alongside a discounted valuation relative to historical averages.
• Monitor key AI monetization metrics in upcoming quarters, specifically the growth in Data Cloud and AI ARR and the adoption rate of paid Agentforce deals, as these are the primary catalysts for a potential stock re-rating.
• Given the stock's significant underperformance and weak technicals, a dollar-cost averaging strategy could be a prudent approach to initiating or adding to a position, mitigating near-term volatility.
• Watch for the closing of the Informatica acquisition by Q4 FY26 and any management commentary on integration synergies, which could accelerate the adoption of Agentforce and Data Cloud.