Salesforce is having a bad year. This is where investors want to see growth

Salesforce has experienced a significant market value divergence from Oracle this year, with its stock down 25% while Oracle's is up 34%, resulting in a $400 billion market cap gap. Ahead of its quarterly earnings, Salesforce faces intense investor scrutiny due to four consecutive quarters of single-digit revenue growth (estimated 8.7% for the current quarter), market saturation in CRM, and AI-driven automation risks to its core Service Cloud offering. This underperformance has intensified pressure from activist investors, notably Starboard Value, who are pushing for margin expansion and improved growth metrics, as the company seeks new avenues through strategic acquisitions like Informatica.

Analysis

Salesforce (CRM) is facing significant investor scrutiny amid severe stock underperformance, having declined 25% year-to-date, in stark contrast to competitor Oracle's (ORCL) 34% gain. This divergence has created a valuation gap of approximately $400 billion, with Oracle now valued at $630 billion versus Salesforce's $239 billion. The core issue stems from decelerating growth, with the company facing its fifth consecutive quarter of single-digit revenue expansion, estimated at 8.7% for the upcoming report. This slowdown is attributed to saturation in its primary CRM market and a structural threat from AI, which could automate customer service roles and thereby reduce demand for its agent-based Service Cloud product—a category representing about a quarter of its subscription revenue. While Salesforce is attempting to pivot with AI solutions like Agentforce, its current $100 million annualized revenue is considered insufficient to impact the company's overall scale. Concurrently, the firm is navigating intense pressure from activist investors like Starboard Value, which recently increased its stake by 47% and continues to push for greater profitability. In response, Salesforce has accelerated margin expansion and resumed large-scale M&A with an $8 billion bid for Informatica, signaling a potential return to its historical growth-by-acquisition strategy. Investors are now keenly focused on forward-looking metrics, specifically whether current remaining performance obligations (cRPO) can clear the 10% growth threshold, which is viewed as a critical indicator for sustaining double-digit growth.

Key Decisions for Investors

• Monitor the upcoming earnings report for forward-looking guidance, specifically whether current remaining performance obligations (cRPO) can surpass the 10% growth mark, as this is a key institutional benchmark for a potential growth re-acceleration.
• Evaluate the risk that AI adoption could cannibalize Salesforce's core Service Cloud revenue faster than new products like Agentforce can scale, as the current AI revenue is not yet material enough to offset a decline in the core business.
• Consider the ongoing activist pressure from Starboard Value as a primary catalyst for continued margin improvement and disciplined capital allocation, but weigh this against the execution risks and potential integration challenges of the large Informatica acquisition.
• Assess portfolio allocation between Salesforce and direct AI infrastructure beneficiaries like Oracle, as the latter is currently demonstrating superior top-line momentum by capturing significant cloud commitments from major AI developers.