Salesforce Is Now A Smart Buy (Upgrade)

Salesforce (CRM) has been upgraded to a "Buy" due to significant traction in its agentic AI initiatives, evidenced by Data Cloud and AI annual recurring revenue reaching $1.2 billion with 120% YoY growth, alongside a Q2 revenue acceleration of 9.77% YoY and improved profitability. However, the company's full-year and Q3 guidance is uninspiring, with slowing Remaining Performance Obligations (RPO) growth indicating potential near-term AI monetization challenges. Despite these mixed signals, the stock's current "depressed" valuation, with a forward P/E of 21.68, and Salesforce's dominant CRM market position are seen as presenting a compelling long-term opportunity in the evolving AI landscape.

Analysis

Salesforce (CRM) demonstrates a significant, yet complex, operational picture. The company's Q2 FY2026 results showed an encouraging inflection, with revenue growth accelerating to 9.77% YoY to reach $10.24 billion, beating expectations by $98.41 million. This top-line strength was complemented by expanding profitability, as adjusted operating margin increased by 60 basis points to 34.3% and adjusted EPS grew 13.67% to $2.91. The primary driver of long-term optimism is the agentic AI division, which has achieved $1.2 billion in annual recurring revenue on 120% YoY growth and strong adoption metrics, including 12,500 deals for Agentforce. However, this momentum is tempered by cautious forward guidance and weakening lead indicators. Total Remaining Performance Obligations (RPO) growth has softened, and the forecast for Q3 constant currency cRPO growth is just 9%, a deceleration from the stable 10-11% range seen over the prior six quarters. Furthermore, full-year revenue guidance of 8.5-9% implies no material acceleration, while guided adjusted EPS growth of 11.27% represents a significant slowdown from FY2025's 24.09%. This suggests that while AI adoption is strong, widespread monetization remains a near-term challenge. The stock's valuation, with a forward P/E of 21.68, reflects this uncertainty, trading at a notable discount to the IT sector median of 25.72.

Key Decisions for Investors

• Investors with a long-term horizon could consider the current depressed valuation as an opportunity to build a position, betting on the eventual monetization of Salesforce's dominant CRM footprint and its rapidly growing agentic AI capabilities.
• Traders and those with shorter time horizons should be cautious, as the uninspiring guidance and decelerating cRPO growth to a guided 9% in Q3 could cap near-term upside and signal continued stock underperformance until a clear re-acceleration in forward-looking metrics emerges.
• All investors should closely monitor Remaining Performance Obligation (RPO) growth in subsequent earnings reports, as this metric will be the key early indicator of whether the company is successfully converting its strong AI adoption into durable, accelerated revenue growth.