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Salesforce Heads into Earnings with Everything to Prove - And Everything to Gain
There's a particular kind of opportunity that veteran investors learn to recognize: a high-quality business whose stock has been thoroughly punished, trading into an earnings report with expectations already on the floor.
Salesforce walks into its first-quarter fiscal 2027 release on Wednesday fitting that description almost too neatly. The stock has shed roughly 32% year-to-date, badly trailing the broader Zacks Internet – Software industry's 12% decline and lagging enterprise software peers including Microsoft, Oracle, and SAP.
For a company that just printed its fastest revenue growth in seven quarters, that disconnect deserves a hard second look. Salesforce is now demonstrating clear acceleration in its most important growth driver — artificial intelligence — while simultaneously expanding margins and delivering consistent execution.
Image Source: StockCharts
Why Salesforce Stock Looks Primed for a Big Move
Let's start with what's actually happening in the business, because the share-price chart and the operating reality have been telling very different stories. Salesforce closed fiscal 2026 with current remaining performance obligations of $35.1 billion, up 16% year-over-year, with management explicitly calling out larger deal sizes and early renewals as the drivers.
Revenue grew 12% in the fourth quarter, and non-GAAP operating margin expanded 110 basis points to 34.2%. The much-watched AI portfolio is no longer a science project: Agentforce and Data Cloud combined to generate roughly $2.9 billion in annualized recurring revenue (ARR) exiting fiscal 2026, more than tripling year-over-year, with Agentforce alone now contributing about $800 million in ARR after a 169% surge.
Roughly 60% of Agentforce deals are coming from existing customers, which is the single most important detail in the entire deck. It means the AI offering is a real expansion lever inside an installed base of more than 150,000 enterprises, not a hopeful greenfield bet.
The setup into the earnings release is relatively straightforward. Salesforce guided first-quarter revenue of $11.03-$11.08 billion and adjusted earnings in a range of $3.11 to $3.13. The respective Zacks Consensus Estimates sit at $11.06 billion in revenue (a 12.5% increase) and $3.12 in earnings (up 20.9%).
Two things are notable here. First, that earnings growth rate dramatically outpaces revenue growth, evidence that the cost-restructuring work of the last two years is dropping straight to the bottom line. Second, the company has now beaten Zacks Consensus EPS Estimates in each of its trailing four quarters, with the average surprise running at 11.6%. That's not a fluke; that's a management team that has learned how to set guidance it can comfortably exceed.
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) indicator seeks to find companies that have recently seen positive earnings estimate revision activity. This more recent information has proven to be very useful in finding positive earnings surprises, giving investors a leg up during earnings season. In fact, when combining a Zacks Rank #3 or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
CRM is currently a Zacks Rank #2 (Buy) stock and boasts a +1.4% Earnings ESP. Our proprietary indicator agrees that another beat is the likely outcome.
Then there's the valuation, which is where this story moves from "interesting" to "compelling." Salesforce (CRM - Free Report) currently trades at a forward 12-month P/E of approximately 13.7x compared with the Internet-Software industry's 18x. To put a finer point on it: the market is valuing the world's leading customer relationship management platform at roughly three-fourths the multiple of its industry peers, despite a revenue base growing in the low double digits and a fortress balance sheet.
The cash story reinforces the case. Management returned more than $14 billion to shareholders in fiscal 2026 through buybacks and a newly raised dividend. The board approved a 5.8% dividend hike to $0.44 per share, and the share repurchase authorization was expanded to $50 billion. The math is corroborated by an operating cash flow profile that has consistently expanded even as the company has invested aggressively in AI.
Bottom Line
For investors with a longer-term horizon, the asymmetry here is hard to ignore. A clean print this week — particularly any acceleration in current RPO growth, continued momentum in AI-related ARR, or an upward revision to full-year guidance — could be the catalyst that closes some of the gap between fundamentals and price.
Even a modestly disappointing print is unlikely to do severe damage to a stock already trading at a severe discount to industry P/E. That is what a favorable risk/reward setup actually looks like in practice: limited downside relative to expectations, and meaningful upside if the operating story plays out as the early data suggests it will.
The combination of a Zacks Rank #2 (Buy), a positive Earnings ESP, a track record of consecutive earnings beats, and a compelling valuation adds up to something investors should take seriously. The market has spent the better part of a year selling Salesforce on what could go wrong. Wednesday evening, the company will get another chance to remind everyone what is actually going right.
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Image: Bigstock
Salesforce Heads into Earnings with Everything to Prove - And Everything to Gain
There's a particular kind of opportunity that veteran investors learn to recognize: a high-quality business whose stock has been thoroughly punished, trading into an earnings report with expectations already on the floor.
Salesforce walks into its first-quarter fiscal 2027 release on Wednesday fitting that description almost too neatly. The stock has shed roughly 32% year-to-date, badly trailing the broader Zacks Internet – Software industry's 12% decline and lagging enterprise software peers including Microsoft, Oracle, and SAP.
For a company that just printed its fastest revenue growth in seven quarters, that disconnect deserves a hard second look. Salesforce is now demonstrating clear acceleration in its most important growth driver — artificial intelligence — while simultaneously expanding margins and delivering consistent execution.
Image Source: StockCharts
Why Salesforce Stock Looks Primed for a Big Move
Let's start with what's actually happening in the business, because the share-price chart and the operating reality have been telling very different stories. Salesforce closed fiscal 2026 with current remaining performance obligations of $35.1 billion, up 16% year-over-year, with management explicitly calling out larger deal sizes and early renewals as the drivers.
Revenue grew 12% in the fourth quarter, and non-GAAP operating margin expanded 110 basis points to 34.2%. The much-watched AI portfolio is no longer a science project: Agentforce and Data Cloud combined to generate roughly $2.9 billion in annualized recurring revenue (ARR) exiting fiscal 2026, more than tripling year-over-year, with Agentforce alone now contributing about $800 million in ARR after a 169% surge.
Roughly 60% of Agentforce deals are coming from existing customers, which is the single most important detail in the entire deck. It means the AI offering is a real expansion lever inside an installed base of more than 150,000 enterprises, not a hopeful greenfield bet.
The setup into the earnings release is relatively straightforward. Salesforce guided first-quarter revenue of $11.03-$11.08 billion and adjusted earnings in a range of $3.11 to $3.13. The respective Zacks Consensus Estimates sit at $11.06 billion in revenue (a 12.5% increase) and $3.12 in earnings (up 20.9%).
Two things are notable here. First, that earnings growth rate dramatically outpaces revenue growth, evidence that the cost-restructuring work of the last two years is dropping straight to the bottom line. Second, the company has now beaten Zacks Consensus EPS Estimates in each of its trailing four quarters, with the average surprise running at 11.6%. That's not a fluke; that's a management team that has learned how to set guidance it can comfortably exceed.
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) indicator seeks to find companies that have recently seen positive earnings estimate revision activity. This more recent information has proven to be very useful in finding positive earnings surprises, giving investors a leg up during earnings season. In fact, when combining a Zacks Rank #3 or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
CRM is currently a Zacks Rank #2 (Buy) stock and boasts a +1.4% Earnings ESP. Our proprietary indicator agrees that another beat is the likely outcome.
Then there's the valuation, which is where this story moves from "interesting" to "compelling." Salesforce (CRM - Free Report) currently trades at a forward 12-month P/E of approximately 13.7x compared with the Internet-Software industry's 18x. To put a finer point on it: the market is valuing the world's leading customer relationship management platform at roughly three-fourths the multiple of its industry peers, despite a revenue base growing in the low double digits and a fortress balance sheet.
The cash story reinforces the case. Management returned more than $14 billion to shareholders in fiscal 2026 through buybacks and a newly raised dividend. The board approved a 5.8% dividend hike to $0.44 per share, and the share repurchase authorization was expanded to $50 billion. The math is corroborated by an operating cash flow profile that has consistently expanded even as the company has invested aggressively in AI.
Bottom Line
For investors with a longer-term horizon, the asymmetry here is hard to ignore. A clean print this week — particularly any acceleration in current RPO growth, continued momentum in AI-related ARR, or an upward revision to full-year guidance — could be the catalyst that closes some of the gap between fundamentals and price.
Even a modestly disappointing print is unlikely to do severe damage to a stock already trading at a severe discount to industry P/E. That is what a favorable risk/reward setup actually looks like in practice: limited downside relative to expectations, and meaningful upside if the operating story plays out as the early data suggests it will.
The combination of a Zacks Rank #2 (Buy), a positive Earnings ESP, a track record of consecutive earnings beats, and a compelling valuation adds up to something investors should take seriously. The market has spent the better part of a year selling Salesforce on what could go wrong. Wednesday evening, the company will get another chance to remind everyone what is actually going right.