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

Salesforce released its second-quarter 2026 earnings report on Sept. 3, 2025. Here’s Morningstar’s take on Salesforce’s earnings and outlook for the stock.

Key Morningstar Metrics for Salesforce

• Fair Value Estimate: $325.00
• Morningstar Rating: ★★★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Salesforce’s Q2 Earnings

Salesforce’s fiscal second-quarter results topped the high end of guidance, with revenue growth of 9% in constant currency to $10.24 billion, while non-GAAP operating margin was 34.3%. Despite this strength, guidance was largely in line with the FactSet consensus.

Why it matters: Subscriptions were ahead of our model, while services were in line. Data cloud and artificial intelligence annual recurring revenue of $1.2 billion was up 120% year over year. For the second straight quarter, management was positive on strength in small business customers.

• Data and AI products were in 60 deals greater than $1 million, with 40% of bookings from this business coming from expansions at existing clients. The firm has closed more than 12,500 Agentforce deals so far, about half of which are paid. Further, 80% of new Agentforce bookings are flex credits.
• Multicloud deals continue to perform well, with 70% of the top 100 deals in the quarter including five or more clouds.

Coming up: Salesforce raised the midpoint of revenue guidance for the full year by less than the quarterly upside. It expects a further $50 million boost from currency, which suggests the firm is more cautious about the fourth quarter. Third-quarter guidance was about as anticipated.

• Guidance for fiscal 2026 includes sales of $41.1 billion to $41.3 billion, which raises the low end by $100 million, with non-GAAP operating margin now at 34.1%, up 10 basis points. Third-quarter guidance includes revenue of $10.24 billion to $10.29 billion and non-GAAP EPS of $2.84 to $2.86.
• Management was bullish during the analyst call, noting acceleration in bookings and ARR, which suggests that guidance could be conservative.

The bottom line: We keep our fair value estimate of $325 per share and see shares as attractive. While we are more concerned with the longer-term growth and profitability trajectory, our near-term estimates are a thin slice below broader Wall Street expectations.

Fair Value Estimate for Salesforce

With its 4-star rating, we believe Salesforce’s stock is undervalued compared with our long-term fair value estimate of $325.00.

This implies a fiscal 2026 enterprise value/sales multiple of 7 times, adjusted price/earnings multiple of 29 times, and a 4% free cash flow yield.

We model a five-year compound annual growth rate for total revenue of 8% through fiscal 2030, which we think will be driven by solid growth in all clouds, with most notable strength coming from the data cloud. Our revenue forecast assumes modest revenue acceleration after depressed growth in both fiscal 2023 and 2024. We forecast non-GAAP operating margin expanding from 31% in fiscal 2024 (actual) to the upper 30% area in fiscal 2030, which we think is consistent with management’s new profitability focus.

We believe the underlying markets are large and growing. According to management, the total addressable market will grow to $248 billion in 2025, with compound annual growth rates for the markets served by Salesforce’s various clouds generally in the low-double-digit percentage area, notwithstanding the post-covid slowdown. In our view, the company will benefit from natural cross-selling of solutions among the clouds. To help support a decade of strong growth, we model several hundred million dollars in bolt-on acquisitions annually after a strategic shift away from inorganic growth.

Read more about Salesforce’s fair value estimate.

Economic Moat Rating

For Salesforce overall, we assign a wide economic moat, arising primarily from switching costs, with the network effect serving as a secondary moat source. Based on the company’s product lines, we believe Sales Cloud, Service Cloud, and Salesforce Platform and others have earned wide moats, while Salesforce, Marketing and Commerce Cloud, and Data Cloud have carved out narrow moats. While services, which is a small portion of revenue, helps facilitate software sales and contributes to customer relationships, we do not think the company’s professional services business would warrant a moat on a stand-alone basis. We believe Salesforce’s moat will probably allow the company to earn returns in excess of its cost of capital over the next 20 years.

Retention metrics typically help inform investors on both the presence and the durability of a moat. These come in two flavors: gross, which describes what percentage of the customer base remains customers after a given period, and net, which highlights what percentage of customer spending is retained by the software provider after a given period. Salesforce’s customer retention has been improving gradually over the last 20 years and now sits at approximately 92% annually, which we characterize as good. Software firms regularly see lower retention rates for small-business users than for enterprise customers, so retention is weighed down by a large proportion of small-business customers.

Digital experience solutions are relatively new compared with CRM and customer service, and there are a wide variety of large competitors in the various marketing analytics, campaign management, customer engagement, advertising platform, and related areas. While this has been a nascent and rapidly emerging area, more recently we see several companies starting to emerge as leaders with a holistic and complete platform. One of these leaders is Salesforce. We believe Salesforce’s tightly integrated and robust platform, with its accelerated innovation based on customer feedback from its extensive customer base, is seen as a strong suite by the marketplace and well positioned to capture an outsize position in this young and growing market.

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 2025, Salesforce had $14.0 billion in cash and investments, offset by $8.4 billion in debt, mostly related to the Slack acquisition, resulting in a solid net cash position. Gross leverage sits at 0.7 times trailing non-GAAP EBITDA, which we do not view as problematic given that we expect the company’s strong and expanding free cash flow generation.

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. Further, Salesforce generated free cash flow margins in excess of 20% in each of the last three years, including 33% in fiscal 2024. We believe that margins should ultimately exceed 30% as growth slows, and we appreciate management’s more balanced approach between growth and margins. We think this level of free cash flow generation should contribute to a muscular balance sheet for years to come.

Read more about Salesforce’s financial strength.

Risk and Uncertainty

We assign Salesforce a Morningstar 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 company, and led it to be a dominant force with a broad portfolio of sales- and marketing-related solutions.

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. Investors have been concerned at times about rich valuations and organic growth prospects, as was the case with the Slack, Tableau, and MuleSoft acquisitions over the last several years. 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.

Building on the acquisition-driven risks, Salesforce is likely to face new competitors as it continues to acquire its way into markets the company was not previously serving. The Demandware acquisition drove entry into a completely new area and brought a wide variety of competitors the company did not previously come across. Additionally, 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 sales force automation but still only controls 30% in a highly fragmented market that continues to grow double digits 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.
• Management is likely going to focus on expanding margins after years of subscale profitability.

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, and while Agentforce looks promising, it may be just another iteration in an evolving approach.

This article was compiled by Isela Meraz.