Salesforce’s soft guidance gives the skeptics more fuel. Here’s why we are

Salesforce on Wednesday reported better-than-expected second quarter results, but the stock sold off in extended trading due to concerns about soft third-quarter revenue guidance and lack of upside in the full-year outlook. Revenue in its fiscal 2026 second quarter rose 10% year over year to $10.24 billion, topping expectations of $10.14 billion, according to LSEG. Adjusted earnings per share (EPS) in the three months ended July 31 totaled $2.91, beating the consensus estimate by 13 cents, LSEG data showed. On a year-over-year basis, adjusted EPS was up 14%. Shares fell more than 5% in after-hours trading to around $242, extending what has been a tough stretch for shareholders since the company reported its fiscal fourth quarter results in February. Still, it’s not the worst level the stock has traded this year. It closed at a low of about $231 in mid-August. CRM YTD mountain Salesforce’s year-to-date stock performance. Bottom line Across nearly every metric, Salesforce’s second quarter results were better than expected. Unlike the first quarter, sales in the software giant’s three largest applications, which it calls “clouds,” were better than expected. Those are Sales Cloud, Service Cloud and Platform & Other. Also the company’s operating margins — on both a generally accepted accounting principles (GAAP) basis and when adjusting for items such as stock-based compensation and severance costs — exceeded the consensus estimates. While it’s true that growth in two metrics relating to its future revenue pipeline — remaining performance obligation (RPO) and current remaining performance obligation (cRPO) — decelerated from the first quarter, both metrics exceeded the consensus forecast and remained in double-digit growth territory. That’s notable because investors want to see its topline expansion eventually return to that level. As for its important new product Agentforce, we liked how the AI-powered platform has closed more than 12,500 deals since its launch three quarters ago, and over 6,000 of these are paid. Some of the big deal wins in the quarter were Dell Technologies , FedEx , Marriot Bonvoy, Anthropic, fellow Club name Eaton , Williams-Sonoma , and Reddit . “We’re seeing an incredible transformation of every enterprise into becoming an agentic enterprise,” CEO Marc Benioff told Jim Cramer on “Mad Money” on Wednesday night. Why we own it Salesforce is a leading enterprise software tool for companies across all industries, helping employees to better communicate with colleagues internally and with their customers. The company’s balance of margin expansion with the potential for faster topline growth — aided by AI adoption — should lead to strong earnings growth. Competitors : SAP , Microsoft , HubSpot Most recent buy : March 5, 2025 Initiation : June 15, 2018 Later on the conference call, Benioff noted that 40% of its Agentforce new bookings this quarter “came from existing customers extending their investment with Salesforce, and it’s demonstrating the value that they’re getting and how the flywheel is really working.” The company’s annual recurring revenue from “Data Cloud and AI” — a grouping that includes Agentforce — reached $1.2 billion in the quarter, up 120% year over year. In late May, Salesforce disclosed a more than $1 billion ARR. This is a sign of continued strong adoption of Salesforce’s AI products. Additionally, on capital returns, the company bought back $2.2 billion worth of stock in the quarter. It may not be as much as the $2.7 billion it spent one quarter ago, but the company said the board also approved a $20 billion expansion to its authorization. What matters is that the buybacks are not stopping as the company waits for the $8 billion Informatica deal to close. The company expects the deal to close in the fourth quarter of fiscal year 2026 or early in fiscal year 2027. That’s what we liked. What we didn’t like was how the third-quarter revenue guide at the midpoint was slightly below the consensus estimate; the full year constant currency revenue growth outlook was left unchanged; and management lowered its full-year GAAP operating margin guidance, although management said this inclusive of additional restructuring charges, which include severance payments. In a recently published podcast interview, Benioff said Salesforce’s customer support team was reduced by 4,000 roles thanks to AI agents taking over their roles. We should note that the full-year non-GAAP adjusted margin outlook was tweaked slightly higher. In his interview with Benioff, Jim asked the CEO about the company’s guidance versus expectations. Benioff defended the outlook, saying in part: “Maybe I’m just being too conservative. I think I’m being appropriately conservative, but I’ve always been that…