Salesforce Posts Strong Q4 Results, But AI Concerns Send Shares Lower
Salesforce delivered a better-than-expected fourth quarter for fiscal year 2026, showcasing robust growth driven by its Agentforce artificial intelligence platform. However, the company’s stock experienced a dip in after-hours trading, reflecting investor apprehension regarding the disruptive potential of AI on established enterprise software players.
For the quarter ending January 31, Salesforce reported revenue of $11.2 billion, a 12% increase year-over-year, surpassing the consensus estimate of $11.18 billion. Adjusted earnings per share (EPS) came in at $3.81, significantly exceeding the anticipated 77 cents and marking a 37% rise from the previous year.
Despite the strong financial performance, shares of Salesforce declined approximately 4.5% in post-market activity, hovering near their 52-week closing low.
**Agentforce: The AI Engine Driving Growth**
A key highlight of the earnings report was the accelerating adoption of Agentforce, Salesforce’s AI-powered platform. The company revealed that Agentforce has facilitated over 29,000 deals since its inception and has now become an $800 million annual recurring revenue business.
CEO Marc Benioff highlighted prominent global brands, including Amazon, Ford, AT&T, Moderna, General Motors, and Pfizer, that are leveraging Salesforce for their “agentic transformation.” Testimonials from the CEOs of SharkNinja and Wyndham Hotels & Resorts during the earnings call further underscored the tangible benefits of Agentforce. SharkNinja reported an enhanced customer service experience, while Wyndham noted reduced labor costs and millions in increased revenue attributed to the platform.
Management expressed a sentiment that the market may not fully grasp Agentforce’s impact, making these real-world CEO accounts particularly valuable in illustrating its positive business outcomes.
**Navigating Growth Metrics: RPO and Organic Performance**
While remaining performance obligations (RPO) and current remaining performance obligations (cRPO) exceeded expectations, a closer look reveals a nuanced picture. The cRPO, which tracks contracted revenue expected within the next 12 months, saw a 13% year-over-year increase in constant currency. However, this figure included a 4 percentage point contribution from the recently completed Informatica acquisition, suggesting organic Salesforce growth was closer to 9%. This figure may have disappointed investors seeking clearer double-digit organic expansion, particularly in light of concerns about the company’s ability to grow both its AI initiatives and its core legacy business simultaneously.
**Margin Performance and Investor Scrutiny**
Margin performance presented a mixed bag. While GAAP (Generally Accepted Accounting Principles) results saw compression year-over-year and fell short of Street expectations, non-GAAP (adjusted) margins expanded more than anticipated, contributing to the healthy adjusted EPS beat. In an environment of heightened scrutiny across the software sector, investors may increasingly focus on GAAP metrics, potentially overshadowing the positive non-GAAP results.
Salesforce’s stock has been a notable underperformer in the S&P 500, down 27% year-to-date, a trend that followed a challenging 2025. The company’s efforts to bolster shareholder value include significant stock repurchases. In Q4, Salesforce bought back $4 billion of its stock and announced a new repurchase program valued at up to $50 billion, representing approximately 27% of its current market capitalization.
However, to effectively counter the narrative of AI disrupting traditional software models, Salesforce would ideally have exceeded expectations across all financial metrics. The observed weaknesses in GAAP margins and organic cRPO growth could present challenges in this regard. Furthermore, revenue and GAAP operating margin guidance for the upcoming fiscal year were perceived as somewhat subdued.
Given the stock’s significant decline from its peak and its current valuation, investors might expect more flexibility. Yet, the prevailing challenge for software companies often lies not just in near-term performance but in how investors value their long-term terminal value.
**Guidance for Fiscal Year 2027**
For the first quarter of fiscal 2027, Salesforce anticipates revenue between $11.03 billion and $11.08 billion, with the midpoint of $11.06 billion surpassing the consensus estimate of $11.01 billion. Adjusted EPS is projected to be in the range of $3.11 to $3.13 per share, exceeding the Street’s estimate of $3.01. cRPO growth is expected to be 13% in constant currency, with Informatica contributing 4 percentage points, aligning closely with the FactSet consensus of approximately 12.8%.
For the full fiscal year 2027, Salesforce projects revenue between $45.8 billion and $46.2 billion, bracketing the consensus estimate of $46.1 billion. This revenue guidance translates to a year-over-year growth of 10% to 11% in constant currency.
GAAP and non-GAAP operating margins are forecasted at 20.9% and 34.3%, respectively, both falling below the consensus estimates of 22.0% and 34.9%. Adjusted EPS is expected to range from $13.11 to $13.19, aligning with the Street’s $13.15 estimate. GAAP EPS is guided between $7.85 and $7.93, a figure notably below the FactSet consensus of $8.24. Free cash flow is anticipated to grow 9% to 10% year-over-year, with capital expenditures representing 1.5% of revenue.
While Salesforce’s Q4 performance demonstrated resilience and the growing impact of its AI initiatives, the market’s reaction underscores the ongoing debate surrounding AI’s long-term implications for the enterprise software landscape. The company’s ability to drive sustained organic growth and translate its AI investments into clear, GAAP-based profitability will be critical in regaining investor confidence.
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