Salesforce’s stock experienced a notable decline on Thursday, plummeting over 7% at the market’s opening. This decrease marks a scary omen for the company as its stocks continue to rally nearer to its annual lows. Despite an overall decent performance in the second quarter, investors expressed disappointment over the company’s future projections, particularly regarding its AI initiatives and revenue guidance.
Salesforce is now recruiting a handful of retailers to join its Agentforce platform. This move comes on the heels of a recent surge in their paid user-ship, now at 6,000. That’s solid growth, but not nearly enough to maintain the company’s full-year revenue guidance. They continue to maintain a very strong hold on between $41.1 billion and $41.3 billion.
Q2 Performance and Investor Expectations
Salesforce recently announced its most recent earnings. The company had better than expected second quarter revenue of $10.24 billion, beating the overall analyst consensus by $100 million. Even with this encouraging turn, investors were expecting higher numbers, which added to their disappointment.
CEO Marc Benioff was already projecting Q3 guidance of $10.24 billion to $10.29 billion. This nowcast reflects a slight increase of 0.5% from last quarter. Failure to provide a meaningful increase in the full-year guidance sent shutters through analysts. Soon their faith began to wane at the company’s unsustainable path of growth.
“Lack of a FY raise on a decent 2Q suggests less upside [the rest-of-year than previously expected],” – Michael Turrin, Wells Fargo analyst
Concerns Over AI Initiatives
Salesforce’s Agentforce platform, with the intent of supercharging customer engagement through artificial intelligence, has seen significant early adoption by users. Market analysts caution that the growth in paying customers may not be sufficient to elevate the company’s overall revenue expectations for the fiscal year.
Kirk Materne, an analyst at Evercore ISI, commented on the situation:
“[W]e did not see this quarter as the ‘unlock’ for the bull case.”
This common sentiment expresses a deep-rooted fear. Salesforce is certainly on the cutting edge of AI innovation, but even those innovations won’t translate into short term or major profits.
Stock Performance and Future Outlook
With Salesforce’s stock under increasing downward pressure, analysts will be looking at the critical support levels of $212-$240. That being said, the stock’s price action in September and October suggests a possible short-term target southward toward the August 12 low around $226. This is the same level that acted as a support floor during that sell-off in May 2024.
With plenty of turbulence on the horizon, Salesforce continues to stay the course with its announced big-picture goals. The company’s decision to recently increase its buyback program by $20 billion shows their confidence that the company has long-term growth potential.
If only because current market conditions would likely cause Salesforce’s stock to keep drifting into the demand window they’ve scoped out. That said, investors should be a little careful. People are more concerned than ever about the firm’s ability to capitalize on its AI efforts. They’re looking for proof of sustained revenue growth over the long-term.