Is It Time to Buy Salesforce Stock?

Key Points

• Salesforce is seeing triple-digit growth in its data cloud and AI recurring revenue.

• The company returned $2.6 billion in Q2 via buybacks and dividends and lifted its total repurchase authorization to $50 billion.

• Q3 guidance is cautious, but recurring revenue strength and cash generation support the bull case.

• 10 stocks we like better than Salesforce ›

Salesforce's (NYSE: CRM) latest quarter delivered a powerful combination of triple-digit growth in artificial intelligence (AI) and robust financials. The customer relationship management software company posted steady top-line growth, expanding margins, and incredible momentum in its newer AI offerings -- all while returning a meaningful chunk of cash to shareholders.

On Sept. 3, the company reported fiscal Q2 results for the period ended July 31. A few days removed from the headline noise, the investment case looks stronger, not weaker. Sure, the Street's knee-jerk reaction to the report seemed centered on short-term noise. Management guided to worst-than-expected sequential growth for fiscal Q3, and shares took a hit in after-hours trading. But a slight miss on guidance is just a small detour in the company's promising growth story. The underlying engine here is throwing off cash, and the AI layer is starting to scale.

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Image source: Getty Images.

The big picture

For its fiscal second quarter, Salesforce delivered strong results on the metrics that matter. Revenue rose 10% year over year to $10.2 billion. Operating margin reached 22.8%, with non-GAAP operating margin at 34.3% -- both an improvement from the same quarter last year. Current remaining performance obligation (cRPO), a leading indicator for revenue growth, rose 11% year over year to $29.4 billion.

Meanwhile, Salesforce's AI story is moving from nascent to substantial. The company's data cloud and AI annual recurring revenue topped $1.2 billion, up 120% year over year. On this note, AI agents are turning out to be a big hit as companies transform into agentic enterprises. Management highlighted broad-based adoption of Angentforce -- Salesforce's platform for creating and deploying autonomous AI agents. There have been over 12,500 Agentforce deals since launch, of which more than 6,000 are paid. These are still early days for AI agents, but the interest is clearly high.

And Salesforce is managing to do all of this while turning out big profits and having excess cash left over to return to shareholders. In Q2, Salesforce returned $2.6 billion to shareholders, including $2.2 billion in repurchases and $399 million in dividends. The board also lifted the buyback authorization by $20 billion, bringing total capacity to $50 billion.

Results and outlook

Q2's mix of double-digit revenue growth and margin expansion points to a business that's getting more efficient as it scales. Subscription and support revenue -- a recurring revenue stream that Salesforce arguably pioneered -- grew 11% and remains the bedrock of the model.

Looking ahead, management reiterated confidence in cash generation, and full-year guidance calls for mid-teens operating cash flow growth -- fuel for both product investment and capital returns. The message is consistent: profitable growth today, with a long runway to keep investing behind it.

Near term, management's guidance indicated a modest deceleration in top-line growth. For Q3, Salesforce expects revenue of $10.24 billion to $10.29 billion, up 8 to 9% year over year. That outlook initially disappointed the market, but it keeps the company firmly on track for an all-time high in cash flow while protecting margins. With cRPO up double digits and AI annual recurring revenue inflecting, it wouldn't be surprising to see revenue growth rates return to double-digit rates in the coming quarters. Of course, it's always possible that Salesforce beats its fiscal Q3 guidance and top-line growth doesn't drop to a single-digit rate after all.

Why buying the dip makes sense

Unlike some tech stocks, the bull case doesn't hinge on AI hype alone. Salesforce already runs a large, profitable, recurring software franchise -- now adding a high-growth AI and data cloud layer on top. That should support mid- to high-single-digit revenue growth, healthy margins, and significant excess cash. Management is signaling how that cash will be used: bigger buybacks and a steady dividend, with room to keep investing through cycles. If execution holds, shareholders can win two ways: through compounding cash flows and a gradually shrinking share count.

Of course, Salesforce does operate in an intensely competitive space. Enterprise spending can tighten, competitive intensity in AI is rising, and any stumble in large-deal timing could pressure growth for a quarter or two. But given the mix of durable subscription revenue, improving margins, and disciplined capital returns, I think the growth stock's risk-reward tilts positive, with shares trading at a price-to-earnings ratio in the thirties as of this writing. For investors looking past the next quarter, Salesforce looks like a buy.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Salesforce. The Motley Fool has a disclosure policy.