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

Salesforce released its fiscal third-quarter earnings report on Dec. 3. Here’s Morningstar’s take on Salesforce’s earnings and stock.

Key Morningstar Metrics for Salesforce

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

What We Thought of Salesforce’s Fiscal Q3 Earnings

Salesforce’s fiscal third-quarter revenue grew 8% in constant currency to $10.26 billion, while non-GAAP operating margin was 35.5%. Fourth-quarter guidance is as expected after normalizing for the inclusion of Informatica, which recently closed.

Why it matters: Artificial intelligence is top of mind for investors, and momentum here is clearly growing, with Agentforce and Data 360 annual recurring revenue of $1.4 billion, up 114% year over year, while stand-alone Agentforce ARR passed $500 million and was up 330% year over year.

• Subscriptions and services were both in line with our model, with Data 360 shy of our expectations and Platform and Other better than we anticipated. Billings accelerated to 13% year-over-year growth, topping revenue growth and boding well for the near term.

The bottom line: We maintain our fair value estimate of $325 per share and see the stock as attractive.

• The seat-based model Salesforce employs has come under intense scrutiny and pressured most of our software coverage throughout 2025, despite our belief that AI is more tool than threat.
• We remind investors that management has guided toward becoming a rule-of-50 firm on its march toward $60 billion in revenue by 2030, and that our model is more conservative. Assuming the firm shows meaningful progress over the next several years, shares would have even more upside.

Coming up: The fourth-quarter outlook formally includes the Informatica deal, which closed on Nov. 18. After normalizing for the acquisition, we characterize guidance as consistent with broader expectations.

• Management was enthusiastic about the building pipeline and the growing usage of AI and still expects revenue to accelerate within 12-18 months.
• Fourth quarter guidance calls for $11.13 billion-$11.23 billion in revenue, which includes approximately $300 million in incremental sales from Informatica based on our calculations, while the full-year outlook for non-GAAP operating margin remains stable at 34.1%.

Fair Value Estimate for Salesforce Stock

With its 4-star rating, we believe Salesforce’s stock is moderately undervalued compared with our long-term fair value estimate of $325 per share, which 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 the 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.

Read more about Salesforce’s fair value estimate.

Economic Moat Rating

For Salesforce overall, we assign a wide moat rating, 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 other 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, help facilitate software sales and contribute 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.

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.

Read more about Salesforce’s financial strength.

Risk and Uncertainty

We assign Salesforce an Uncertainty Rating of High. 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.

We believe the most important metric for Salesforce investors is revenue growth. Therefore, continued deceleration in the Sales Cloud, or growth that does not materialize as expected in the Service, Marketing, and Commerce Clouds or the Salesforce Platform would likely have an adverse impact on the stock, in our view.

Read more about Salesforce’s risk and uncertainty.

CRM Bulls Say

• Salesforce dominates salesforce 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

• 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 Frank Lee.