Salesforce Shares Dip Despite Solid Revenue and Earnings Growth. Should Investors Buy the Dip or Run for the Hills?

Key Points

• Salesforce shares dipped despite better-than-expected results, as its slight guidance increase failed to impress investors.

• The company is fighting investors' sentiment that it will be an AI loser.

• The stock has become cheap on several widely watched valuation metrics.

• 10 stocks we like better than Salesforce ›

Salesforce (NYSE: CRM) reported solid fiscal 2026 second quarter results that topped analyst expectations, but the stock fell after the company failed to raise the high end of its revenue guidance.

Investors have been wary of how artificial intelligence (AI) will impact its business moving forward, and the business model of software-as-a-service (SaaS) companies in general. The stock has now lost more than a quarter of its value this year.

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Let's take a closer look at Salesforce's report to see if the stock can recover from its recent malaise.

Image source: Getty Images.

Turning to agentic AI

While investors question the role of Salesforce in an AI world, the company has pushed all in on AI agents. On its conference call, it said it is "rebuilding every single one of [its] products to be agentic."

Its Agentforce platform now has more than 6,000 paid deals and more than 12,500 in total. About 40% of these bookings came from existing customers. It also added that it saw a 60% sequential increase in customers moving from piloting Agentforce to full production. It said its new Agentforce consumption-based pricing model, FlexCredits, has helped drive growth, with 80% of new bookings using the new pricing structure.

Salesforce's other big growth driver has been its Data Cloud offering, which helps customers unify their data into a single source. Data Cloud's annual recurring revenue (ARR) surged 120% year over year to $1.2 billion, while its number of customers soared 140%.

Overall, Salesforce's revenue increased 10% year over year to $10.23 billion, surpassing its guidance range of $10.11 billion to $10.16 billion. Subscription and support revenue jumped 11% to $9.69 billion. Platform sales, where Agentforce and Data Cloud reside, were strong, up 16%, while marketing and commerce was its weakest area, with growth of only 3%.

Among its other core products that came from prior big acquisitions, Tableau led the way with 15% growth. Slack revenue, meanwhile, climbed 11%, while Mulesoft revenue rose 9%.

Adjusted earnings per share (EPS) jumped 14% to $2.91. The results came in ahead of analyst consensus expectations for adjusted EPS of $2.78 on revenue of $10.14 billion, as compiled by LSEG.

The company continues to generate a lot of cash. Operating cash flow came in at $740 million, while free cash flow was $605 million. The company ended the quarter with $15.4 billion in cash and short-term investments and $8.4 billion in debt. It spent $2.6 billion buying back shares and paying dividends during the quarter, and added an additional $20 billion to its repurchase program, bringing it to $50 billion.

Salesforce's current remaining performance obligations rose by 11% year over year to $29.64 billion. They are the part of a company's contracted revenue that is expected to be recognized within the next 12 months and is a measure of future revenue.

The company slightly boosted the low end of its full-year revenue outlook, while increasing its EPS guidance, as you can see below:

Data source: Salesforce.

For fiscal Q3, the company forecast revenue to rise by 8% to 9% to between $10.24 billion and $10.29 billion. It is looking for adjusted EPS in a range of $2.84 to $2.86. Analysts were looking for adjusted EPS of $2.85 on $10.29 billion in revenue.

Should investors buy the dip?

With the advent of AI, investors have turned sour on seat-based SaaS companies, fearing that the emerging technology will lead to fewer workers and put pressure on their business models. Salesforce itself is leaning into that theme, trying to essentially create a digital workforce. It's even reduced its own customer service headcount and replaced many workers with its AI agents.

Over time, the SaaS model may evolve, but so do great companies. Salesforce is not sitting still, and its AI agent platform, Agentforce, is gaining solid traction. Its move to FlexCredits looks like a smart move, and helps the company better align the usefulness of its agents with their costs.

Flexible credits are something some cybersecurity companies have adopted with nice success, and it is showing early signs of working for Salesforce, as well. In the future, it wouldn't be surprising if most of SaaS eventually evolves more into a consumption-type model.

Investor sentiment, meanwhile, has pushed down Salesforce's stock to very low valuations on multiple metrics. Based on next year's fiscal 2027 analyst estimates, it now trades at a forward price-to-sales multiple of 5, a forward price-to-earnings (P/E) ratio of 19, and a price/earnings-to-growth (PEG) ratio of below 0.5. A PEG ratio less than 1 is generally reflective of an undervalued stock. It also has $7 billion in net cash, or $7.35 per share, on its balance sheet.

Salesforce is going to have to prove to investors it's not an AI loser, but if it can, the stock has a lot of potential upside at its current valuation level. As such, I'd be buying the dip.

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Geoffrey Seiler has positions in Salesforce. The Motley Fool has positions in and recommends Salesforce. The Motley Fool has a disclosure policy.