With a 20% year-to-date (YTD) decline, Salesforce stock (NYSE:CRM) has significantly underperformed the broader S&P 500 index, which is up 4%. This strong underperformance is largely attributed to rising concerns over slowing growth and the company’s competitive position in key areas like AI. However, if we look at a broader timeline, CRM stock has doubled since early 2023, driven by three primary factors:
- A 46% growth in its revenues, rising from $26.5 billion in 2022 to $38.6 billion now;
- A 39% increase in Price-to-Sales (P/S) ratio, climbing from 4.9x to 6.7x; and
- A 0.4% decline in total shares outstanding, supported by approximately $22 billion in share buybacks since 2022.
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What’s Behind The Revenue Growth?
Salesforce’s revenue has shown steady growth, climbing 46% from $26.5 billion in 2022 to $38.6 billion over the last twelve months. While growth has moderated lately compared to historical rates, this expansion has been driven by several key structural factors:
- AI and Agentforce Platform: Salesforce’s aggressive push into agentic AI (systems that can operate autonomously) is showing early promise, with over 8,000 Agentforce deals closed since October last year, of which 3,000 were added just in Q1 of fiscal 2026 (fiscal ends in January). The company has positioned AI agents as the next evolution of customer relationship management.
- Data Cloud Expansion: The Data Cloud and AI segment has become a significant growth driver, generating $900 million in annual recurring revenue, up nearly 120% year over year. Data Cloud processed 50 trillion records in fiscal 2025 — double the previous year — demonstrating its critical role in powering AI capabilities.
- Subscription Model Resilience: Core subscription and support revenue continues to provide stability. The company maintains a strong foundation with current remaining performance obligation of $29.6 billion, up 12% year-over-year.
What’s Driving The Valuation Higher For CRM Stock?
Salesforce’s price-to-sales ratio has expanded significantly from 4.9 times trailing revenues in 2022 to 6.7 times now, representing a 39% increase. See Salesforce’s Valuation Ratios for deeper insights. This multiple expansion reflects several key market dynamics and strategic positioning factors:
- AI Transformation Premium: The market is rewarding Salesforce’s aggressive pivot to AI-powered services, particularly with Agentforce positioning the company at the forefront of the “agentic AI” revolution.
- Pricing Power and Revenue Quality: Salesforce’s ability to implement a 6% price increase across its product suite in 2025 while adding AI capabilities demonstrates strong pricing power and customer stickiness. This price increase was announced this month and will be implemented on August 1.
- Market Leadership in Enterprise AI: As enterprise AI adoption accelerates, Salesforce’s position as the dominant CRM platform gives it unique advantages in deploying AI agents across customer workflows.
- Strategic M&A and Platform Expansion: The $8 billion acquisition of Informatica demonstrates Salesforce’s commitment to building a comprehensive AI-powered data platform. This type of strategic expansion, combined with the Data Cloud’s rapid growth, positions the company to capture more enterprise spend and justifies premium valuations relative to single-point solutions.
The multiple expansion reflects investor confidence that Salesforce can successfully navigate the AI transformation and emerge with stronger competitive positioning, despite near-term growth challenges.
But What Next? Is CRM Stock A Buy At $270?
Trading near $270, CRM’s P/S ratio of 6.7x is below its three-year average of 8.6x. Some of this gap can be attributed to headwinds from maturing markets and intensifying competition in the CRM space, which explains the more modest growth trajectory and recent stock performance challenges.
However, we believe Salesforce’s valuation has room to grow further, supported by early leadership in agentic AI driving widespread “digital labor” adoption. Furthermore, the shift to permanent enterprise AI budgets favoring integrated platforms, untapped small and medium business market potential, and margin expansion through AI-powered automation, could aid its valuation. Salesforce’s operating margin has expanded ten-fold, from just 2.1% in 2022 to 20.5% now. Even if we look at the adjusted net income margin, it has expanded by 50% over this period to 26% now. The recent price hikes will further benefit the margin growth. We estimate Salesforce’s valuation to be $360 per share, reflecting a significant 30% upside potential.
But There Are Risks
Despite the optimistic outlook, risks remain. In the inflation-driven downturn of 2022, CRM stock dropped 59%, from a peak of $310 in November 2021 to $128 by December 2022—more than the S&P 500’s 25% decline. Although it recovered to pre-crisis levels by December 2024, a subsequent sell-off occurred earlier this year amid trade tensions, where CRM dropped nearly 35%, worse than the 19% fall in the S&P 500. For more, refer to our Buy or Sell Salesforce Stock dashboard.
Beyond macroeconomic issues, Salesforce faces immediate threats from intensifying competition, particularly Microsoft’s competing AI agents leveraging existing enterprise relationships. The company also grapples with AI transformation execution risks, specifically around customer adoption, willingness to pay premium prices for AI features, and the ongoing challenges of customization and implementation complexity. That’s why we apply a risk-adjusted framework in building the 30-stock Trefis High Quality (HQ) Portfolio, which has consistently outperformed the S&P 500 over the last four years. Why? HQ Portfolio companies offer stronger returns with lower risk relative to the broader market, providing a smoother ride, as shown in HQ Portfolio performance metrics.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
