How Doomed is Salesforce (CRM)?
AI Podcast
Salesforce demonstrates stable revenue growth, exceeding mid-to-high single digits and projecting 12% for Q1 FY27, with improving gross and operating margins. A significant $50 billion share repurchase signals management confidence, though it pressures liquidity. While AI may reduce seat counts, Salesforce offsets this via AI upsells and cost synergies. Its strategy to evolve Data Cloud and introduce AI agents, mirroring Palantir's model, particularly through the Missionforce unit and a U.S. Army contract, offers a path for re-rating and renewed growth. Despite headwinds, fundamentals are robust, and the business is resilient.
Financial Overview
Over the last 10 quarters, Salesforce's revenue growth has remained remarkably stable, fluctuating in a relatively narrow band without any material deceleration toward zero or negative territory. If AI were truly disrupting the CRM category in a destructive way—by rendering traditional seat-based licensing obsolete—one would expect to see flat or declining revenues by now. Instead, the company continues to post consistent mid-to-high single-digit growth, with recent acceleration. Not only that, in the recent earnings call CRM projected 12% for Q1 FY27.
Fiscal Quarter | Period Ending | Revenue | YoY Growth |
Q4 FY26 | 31-Jan-26 | $11.20B | 12.10% |
Q3 FY26 | 31-Oct-25 | $10.26B | 9.10% |
Q2 FY26 | 31-Jul-25 | $10.24B | 9.80% |
Q1 FY26 | 30-Apr-25 | $9.83B | 7.60% |
Q4 FY25 | 31-Jan-25 | $9.99B | 7.60% |
Q3 FY25 | 31-Oct-24 | $9.44B | 8.30% |
Q2 FY25 | 31-Jul-24 | $9.33B | 8.40% |
Q1 FY25 | 30-Apr-24 | $9.13B | 10.70% |
Q4 FY24 | 31-Jan-24 | $9.29B | 10.80% |
Q3 FY24 | 31-Oct-23 | $8.72B | 11.30% |
If competitive disruption were severe, one would anticipate eroding pricing power, increased discounting, and margin compression as customers push back or defect. The opposite is occurring. Gross margins (GAAP) have trended upward from the mid-75% range to over 78%, while operating margins show steady improvement. This margin expansion reflects disciplined cost management, including headcount reductions that align with slower seat growth in some client accounts, as well as operating leverage from scale.
Fiscal Quarter | Period Ending | GPM (GAAP) | OPM (GAAP) | OPM (Non-GAAP) |
Q4 FY26 | 31-Jan-26 | 78.20% | 20.80% | 34.20% |
Q3 FY26 | 31-Oct-25 | 78.00% | 21.30% | 35.50% |
Q2 FY26 | 31-Jul-25 | 78.10% | 22.80% | 34.30% |
Q1 FY26 | 30-Apr-25 | 77.00% | 19.80% | 32.30% |
Q4 FY25 | 31-Jan-25 | 77.80% | 18.20% | 33.10% |
Q3 FY25 | 31-Oct-24 | 77.70% | 20.00% | 33.10% |
Q2 FY25 | 31-Jul-24 | 76.90% | 19.10% | 33.70% |
Q1 FY25 | 30-Apr-24 | 76.30% | 18.70% | 32.10% |
Q4 FY24 | 31-Jan-24 | 76.90% | 17.50% | 31.40% |
Q3 FY24 | 31-Oct-23 | 75.30% | 17.20% | 31.20% |
As for the balance sheet, the situation is not stellar but still reasonable with moderate leverage levels:
Metric | Amount | Details |
Cash & Cash Equivalents | $7.33 B | Highly liquid cash in bank accounts. |
Marketable Securities | $2.24 B | Liquid investments (ST bonds/notes). |
Total Liquidity | $9.57 B | Total cash + marketable securities. |
Total Debt | $14.40 B | Includes ~$3B in current & ~$8.6B in long-term debt. |
Net Debt | $4.83 B | (Total Debt minus Total Liquidity). |
A major development announced alongside the earnings is a massive $50 billion share repurchase authorization. This represents more than 25% of the current market capitalization at the time of announcement—a bold move. Buybacks at this scale often signal strong management confidence in the intrinsic value of the shares. However, funding such a program (likely through a mix of cash flow, debt, and possibly asset sales) will place meaningful pressure on liquidity over time. Critics argue these funds could instead be deployed into R&D, AI innovation, or acquisitions to strengthen competitive positioning. The trade-off is clear: near-term shareholder returns versus long-term reinvestment.
Why the Business Remains Resilient
Salesforce's seat-based model is undeniably exposed to corporate headcount trends. As companies adopt AI to automate roles (particularly in sales, service, and support), the number of licensed users could decline, pressuring revenue. Yet several counterbalancing dynamics are at play:
- AI Upsell Offsets Seat Loss — Fewer seats can be offset by higher pricing per remaining user. Salesforce is embedding AI deeply into its platform (via Agentforce and related tools), enabling customers to achieve more with fewer people—analogous to how tobacco companies maintain profitability by selling fewer units at premium prices.
- Cost Synergies for Salesforce Itself — Reduced client usage and seat counts reduce the need for massive support and services headcount on Salesforce's side, helping protect (and expand) margins.
- Stickiness and Career Risk — Enterprise CRM implementations are deeply embedded. Replacing Salesforce carries high switching costs and organizational disruption risk. Many executives view it as a "safe" choice—eliminating it could jeopardize careers if problems arise. This inertia provides a durable moat.
A practical example: If a sales team reduces headcount by 30%, revenue does not automatically fall 30%. Companies typically eliminate lower performers first. Top salespeople—who drive the most pipeline and rely heavily on CRM tools for lead management, forecasting, and tracking—are often the heaviest users. Thus, seat reductions can be less revenue-destructive than headline numbers suggest. Salesforce is not doomed—at least not yet. The financial metrics remain solid, and the company continues to grow and expand profitability.
The Real Question: Valuation Re-Rating
The market has aggressively re-priced Salesforce and many legacy SaaS names. During the low-interest-rate, high-growth era, these businesses commanded premium multiples due to rapid expansion, high margins, and perceived switching-cost moats. Today, computing costs have plummeted, AI lowers barriers to entry, and most large SaaS players have transitioned from hyper-growth to mature mid-single-digit to low-double-digit expansion.The central investor debate is not survival—strong financials make that unlikely—but whether Salesforce can ever regain its former high-valuation status.
Positioning as the “New Palantir”
One plausible path to re-rating lies in Salesforce evolving toward a Palantir-like model. CEO Marc Benioff has explicitly signaled this ambition.Key moves include:
- Late 2025: Creation of Missionforce, a dedicated unit targeting government and military contracts.
- Early 2026: Evolution of Data Cloud (previously Data 360) to build unified enterprise data maps beyond traditional CRM silos—mirroring Palantir Foundry's ontology approach.
- A landmark $5.6 billion, 10-year U.S. Army contract for Missionforce.
The strategic goal: If Salesforce can map an organization's full business logic, it can deploy Agentforce (autonomous AI agents) to automate decisions—similar to Palantir's AIP platform.A side-by-side comparison highlights differences and potential:
- Agentforce (Salesforce) starts with customer workflows and CRM data; leverages metadata for fast, templated deployment (weeks); priced at ~$125/user/month or $2/conversation; best for high-volume task automation.
- AIP (Palantir) builds a comprehensive digital twin/ontology across disparate sources; requires heavy custom integration (months); value-based pricing with large contracts; excels at complex optimization problems.
While Palantir holds technical advantages in handling messy, mission-critical datasets, Salesforce benefits from massive installed base, faster go-live times, and easier adoption for commercial enterprises. With strategic hiring, Salesforce could close the gap.
Key Growth Drivers
- Agentforce: Transitioning from LLM wrappers to fully autonomous agents. Usage-based pricing ($2 per conversation vs. $150+/month per human seat) creates upside from increased adoption. ARR reached $800 million (+169% YoY).
- Data Cloud: Essential foundation for Agentforce (+114% YoY growth). No Agentforce without robust data unification.
- Missionforce: Positions Salesforce in high-value, long-duration government/military deals—Palantir's stronghold.
If Salesforce successfully executes this pivot—blending its CRM heritage with AI-driven data orchestration and autonomous agents—it could justify a materially higher multiple, closer to Palantir's current premium valuation. In summary, Salesforce faces real headwinds from AI disruption and growth normalization, but the business fundamentals remain robust. The $50 billion buyback reflects confidence, while the Palantir-inspired strategy offers a credible path to renewed growth and re-rating. The company is far from doomed; the question is how high it can climb again.
