After Earnings, Is Salesforce Stock a Buy, a Sell, or Fairly Valued?

Salesforce released its first-quarter earnings report on May 27. Here’s Morningstar’s take on Salesforce’s earnings and stock.

Key Morningstar Metrics for Salesforce

• Fair Value Estimate
  : $280.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

What We Thought of Salesforce’s Q1 Earnings

Salesforce’s fiscal first-quarter revenue grew 12% in constant currency to $11.13 billion, while non-GAAP operating margin was 34.8%. Fiscal 2027 guidance was raised slightly to account for upside in the quarter and the substantial accelerated share repurchase program.

Why it matters: Artificial intelligence continues to show momentum, which should persist through 2028, with total Agentforce and Data 360 annual recurring revenue of $3.4 billion, up more than 200% year over year, while stand-alone Agentforce ARR was $1.2 billion, up 205% year over year.

• Subscriptions drove nearly all of the upside relative to our model, with on-premises Informatica revenue strength overcoming continued weakness in commerce cloud and Tableau. Management highlighted meaningful revenue acceleration at Informatica over the last several quarters.
• We see conflicting cross-currents on the road to management’s continued call for top-line acceleration in the second half. Billings decelerated sharply to 4% year-over-year growth, while the current remaining performance obligation accelerated to 14% year-over-year growth.

The bottom line: We maintain our fair value estimate of $280 per share for narrow-moat Salesforce. We think Salesforce will survive the current iteration of the death of software and probably thrive in the age of AI. We think the firm’s outlook for revenue acceleration should serve as a catalyst.

• Shares look cheap, but we note the AI fear around software with our High Morningstar Uncertainty Rating. For context, to force our model to show a fair value estimate near the $180 level shares currently hover near, we have to input meaningful revenue contraction over time, which we think is unlikely.

Coming up: We characterize the outlook for the second quarter as being mildly disappointing, which is kept in check by the slight increase to the full-year outlook. Second-quarter revenue is expected to be $11.310 billion at the midpoint, with a non-GAAP operating margin of 34.3%.

Fair Value Estimate for Salesforce

With its 4-star rating, we believe Salesforce stock is moderately undervalued compared with our long-term fair value estimate of $280, which implies a fiscal 2027 enterprise value/sales multiple of 6 times, adjusted price/earnings multiple of 21 times, and a 5% free cash flow yield.

We model a five-year compound annual growth rate for total revenue of 9% through fiscal 2031, which we think will be driven by solid but slowing growth in all clouds, with the most notable strength coming from the data cloud in support of AI. We note our estimates are meaningfully below management’s longer-term framework as we wrestle with AI uncertainty.

Read more about Salesforce’s fair value estimate.

Economic Moat Rating

For Salesforce overall, we assign a narrow moat rating, driven primarily by switching costs, with network effect serving as a secondary moat source. Based on the firm’s product lines, we believe that Sales Cloud, Service Cloud, Salesforce Platform, Marketing and Commerce Cloud, and Integration and Analytics each have a narrow moat. Agentforce should help defend the company’s moat from the emerging AI threat. We believe customers value Salesforce’s discrete clouds as stand-alone solutions, but the various clouds are highly complementary and tightly integrated, making the complete set of solutions more compelling. Salesforce’s moat will probably allow the company to earn returns in excess of its cost of capital over the next 10 years.

Read more about Salesforce’s economic moat.

Financial Strength

We believe Salesforce is a financially sound company. Revenue growth is reflective of a mature large-cap software company, while margins continue to expand. As of January 2026, Salesforce had $9.6 billion in cash and investments, offset by $14.4 billion in debt, mostly related to the Slack and Informatica acquisitions, resulting in a net debt position for the first time in many years. Operating margins continue to expand as Salesforce focuses on profitable growth. Management expects continued expansion of non-GAAP operating margins over the next several years. Gross leverage sits at 1.0 times trailing non-GAAP EBITDA, which we do not view as problematic given that we expect strong and expanding free cash flow generation.

Read more about Salesforce’s financial strength.

Risk and Uncertainty

We assign Salesforce an Uncertainty Rating of High. From a big-picture perspective, we believe CEO Marc Benioff will be difficult to replace, as he pioneered the software industry, co-founded the firm, and led it to be a dominant force with a broad portfolio of sales and marketing-related solutions.

Generative AI is an emerging risk for software vendors. After several missteps early in the AI evolution, we think Agentforce is now on a positive trajectory. We believe the most important metric for Salesforce investors is revenue growth. Therefore, continued top-line deceleration or growth that does not materialize as expected would likely have an adverse impact on the stock. To help drive growth, Salesforce has also been acquisitive. While we do not believe acquisitions have been transformative, the company has certainly executed some larger transactions in order to help establish an immediate or larger presence with a particular solution. We believe the company is likely to continue to make acquisitions but has pulled back from larger deals. In these situations, valuation and integration will remain risks.

While we do not see significant environmental, social, and governance risks, Salesforce faces strong competition for software engineers on the hiring front and also faces risks arising from a potential data breach in its data centers.

Read more about Salesforce’s risk and uncertainty.

CRM Bulls Say

• Salesforce dominates its core CRM and service markets but still only controls 30% in a highly fragmented market that continues to grow in the 10% area each year, suggesting there is still room to run.
• The company has added legs to the overall growth story, including customer service, marketing automation, e-commerce, analytics, and artificial intelligence.
• As growth has decelerated, management is focused on improving margins and enhancing capital returns in the form of both dividends and stock buybacks.

CRM Bears Say

• As the company grows larger, it may be increasingly difficult for Salesforce to grow faster than its various end markets.
• Salesforce has entered new areas via acquisition and has arguably paid material premiums in the process. Integration risk is real, as is the risk of increasingly large, dilutive, or ill-conceived deals.
• The company’s generative AI strategy has been a series of fits and starts. Even as Agentforce is now gaining traction, AI increases the risk of new or enhanced competition and pressure on existing seat counts.

This article was compiled by Jillian Moore.