Salesforce (NYSE:CRM) has been among the hardest-hit stocks in the recent AI-driven SaaS selloff, having lost over 20 percent of its value since the start of the year. Like many other SaaS majors, Salesforce entered a downward spiral after Anthropic released a new suite of agentic workflow tools through Claude Cowork. Is Salesforce stock on sale now, or do the risks posed by AI justify the severe downgrade in CRM’s share prices?
AI Fears Around Salesforce
Salesforce is just one of the many software businesses that have experienced drastic selloffs in the wake of the Anthropic release. Cowork is expected to significantly boost productivity by giving workers access to agentic AI that can handle complex workflows on its own. Though likely a plus for customers, this shift toward agentic AI could undermine the value propositions of traditional productivity software. Looking further down the road, fears persist that AI will ultimately replace SaaS tools altogether by making it feasible for businesses to build their own software tools in-house.
While AI may or may not actually replace SaaS businesses, it likely will have major implications for Salesforce’s business model. Historically, Salesforce has priced according to headcount, charging customers more based on the number of user licenses they require. Because AI tools are enabling each individual user to do more, this per-person pricing model could be a drag on Salesforce’s revenues going forward, rather than a growth driver.
Fortunately, hybrid pricing models relying more on usage than headcounts are increasingly being used to balance this trend off. Salesforce is already embracing hybrid pricing, allowing it to profit from its own AI tools and reduce its reliance on per-user pricing. This approach not only prevents Salesforce from becoming pidgeonholed into a failing pricing model but also gives its customers more flexibility to select pricing that best meets their needs.
Looking at CRM’s Price Today
Although the stock has taken quite a bit of punishment over the last couple of months, its valuation multiples haven’t exactly collapsed. CRM is still trading at 25.6 times trailing 12-month earnings and 4.6 times sales. The stock’s price has, however, slipped toward the lower end of the range of analyst price forecasts. The lowest price target for CRM is $190, and the stock currently trades at $199.47. At the consensus price target of $289.65, Salesforce would have about 45 percent of upside at today’s prices.
It’s also interesting to note that the events of this year haven’t dramatically changed the balance of analyst ratings. Six months ago, CRM held 34 buy ratings, 11 hold ratings and no sell ratings. Today, the stock has 35 buy ratings, 12 hold ratings and no sells. This suggests that most analysts believe the market has overblown the risks presented to Salesforce by AI.
How Real Is the Threat of AI Disruption?
At the heart of the value argument for Salesforce is the question of how much and how quickly AI will actually disrupt SaaS majors. Although there’s little doubt that agentic AI tools enable more productive workflows, there are other advantages of SaaS platforms that they may not be able to so easily take away. At large organizations, for example, these platforms often act as a kind of organizational memory, representing decades of infrastructure investments and holding vast amounts of critical business data. Migrating away from traditional SaaS platforms to AI-driven workflows, meanwhile, introduces costs and disruptions that many businesses will likely shy away from.
With that said, it’s not a stretch to suppose that AI tools will have very real impacts on future revenue and earnings growth by limiting the pricing power of SaaS companies. With Anthropic and other AI startups quickly deploying newer and better models that can handle complex workflows on their own, the SaaS market likely won’t be the bulletproof growth engine going forward that it has been for many years.
In Salesforce’s specific case, though, the existing moat may prove to be more robust than the market’s fear-driven selloff would seem to indicate. Salesforce accounts for more than 20 percent of the CRM software market and has been the largest CRM provider for over a decade. Additionally, Salesforce is used by about 150,000 customers and an incredible 90 percent of Fortune 500 companies. As such, it could have exactly the kind of entrenched moat that could protect large SaaS providers from AI disruption.
Indeed, Salesforce’s recent quarterly report seemed to flip the narrative when it came to the business’s growth prospects. Q4 revenue grew 12 percent year-over-year to $11.2 billion, while full-year revenues rose 10 percent to $41.5 billion. Free cash flow, meanwhile, rose 16 percent to $14.4 billion for the year. Salesforce also finished the year out with $72 billion in RPO. Interestingly, Salesforce’s own agentic AI tools contributed significantly to these positive results.
Is Salesforce Discounted Now?
Considering the growth that Salesforce is still producing and the likelihood that the market has exaggerated the dangers of AI to SaaS businesses, there could be a decent argument to be made for looking at CRM while it’s still sold off. Though the stock hasn’t exactly become dirt cheap, the price contraction it has seen so far this year could create an attractive entry point. Moreover, the fact that Salesforce is using its own AI tools and shifting its pricing model to better reflect the AI landscape could put the business in a better-than-expected position going forward.
Salesforce is also showing strong commitments to using its cash flows to deliver value for shareholders. Alongside its recent earnings report, Salesforce announced a new buyback authorization of $50 billion, dwarfing the $12.7 billion worth of its own shares it repurchased last year. Salesforce is also raising its dividend by nearly 6 percent, with each share now paying $0.44 per quarter.
All told, Salesforce could be a stock to buy on a fear-driven dip. Though it’s important to consider the very real risks that AI could have in store for the software industry going forward, Salesforce’s moat, performance and valuation could all make it a decent stock to own for the long run.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.