Wells Fargo lowers Salesforce stock price target to $265 on slower AI uptake

Salesforce (CRM) reported strong Q2 results, including 9% revenue growth and a 34.3% non-GAAP operating margin, alongside robust growth in AI annual recurring revenue to $1.2 billion. However, analyst sentiment is mixed, with Wells Fargo lowering its price target to $265 due to slower-than-anticipated adoption of AI offerings like Agentforce and viewing Q2 upside as one-time, compounded by the company's decision not to raise fiscal year guidance. This cautious outlook, echoed by other firms like Bernstein citing soft guidance, highlights investor concerns regarding the pace of near-term growth acceleration and AI monetization despite Salesforce's strong underlying financial health.

Analysis

Salesforce (CRM) presents a mixed picture for investors, characterized by strong current performance juxtaposed with a cautious forward-looking outlook from both management and analysts. The company reported a solid fiscal second quarter, with 9% constant currency revenue growth, a 10% increase in current remaining performance obligation (cRPO), and an impressive non-GAAP operating margin of 34.3%. Furthermore, Salesforce's AI initiatives show significant momentum, with Data Cloud and AI annual recurring revenue (ARR) reaching $1.2 billion, a 120% year-over-year increase. However, this optimism is tempered by the company's decision not to raise its full-year revenue guidance, a key factor driving analyst concern. Wells Fargo, lowering its price target to $265, cited slower-than-anticipated adoption of AI offerings like Agentforce and characterized the Q2 upside as largely one-time in nature, stemming from license revenue and service timing. This sentiment is echoed by Bernstein and others, who point to the soft guidance as a disappointment despite the earnings beat. The divergence in analyst price targets—ranging from Bernstein's $221 to JPMorgan's $365—highlights significant uncertainty regarding the pace at which Salesforce can translate its AI investments into accelerated top-line growth, even as its fundamental metrics, like a 77.34% gross profit margin, remain robust.

Key Decisions for Investors

• Investors should weigh Salesforce's strong current profitability, including a 34.3% non-GAAP operating margin, against the significant risk highlighted by analysts that near-term growth may not accelerate as a result of AI initiatives.
• Monitor the adoption rate of key AI products, specifically the growth in paid Agentforce customers and the contribution of the $1.2 billion AI ARR to total revenue, as these are the primary metrics influencing analyst sentiment and future guidance.
• Given the wide dispersion in analyst price targets and the view that recent upside was one-time, it may be prudent to assess position sizing to account for potential near-term stock volatility until a clearer trend of AI-driven growth emerges.
• Consider the potential for future catalysts not yet priced in, such as the impact of recent pricing changes on fiscal year 2026 bookings and the potentially accelerated closing of the Informatica acquisition.