Salesforce Stock Faces Headwinds: What's Next for CRM?
Salesforce (CRM) is experiencing a challenging year, with its stock price plummeting 28% year-to-date. This decline significantly underperforms the broader Zacks Computer and Technology sector, which has only seen a 13.5% drop. Compared to competitors like SAP, Microsoft, and Oracle, whose shares have risen substantially, Salesforce's struggles are even more pronounced.
Several factors contribute to this downturn. A key concern is decelerating sales growth. After years of double-digit revenue increases, Salesforce's growth momentum has slowed considerably. In the first quarter of fiscal 2026, revenues rose by only 7.7%, and non-GAAP earnings per share (EPS) increased by a mere 5.7%.
This slowdown reflects a cautious approach to enterprise spending amid economic uncertainties and geopolitical pressures. Analysts predict that this trend will continue, with mid-to-high single-digit growth expected for fiscal years 2026 and 2027. The company's EPS is projected to witness a CAGR of 12.9% over the next five years, a significant drop from the 27.8% CAGR it posted over the previous five years.
However, analysts at Bank of America Securities maintain a "Buy" rating on Salesforce's stock, with a price objective of $350. They anticipate a rebound in growth for its largest business, Service Cloud. They estimate that Service Cloud revenue will reach $9.7 billion in FY 2026, representing 25% of the total subscription revenue. This growth is expected to accelerate to 9% in the coming quarters and trend towards 12% in the longer term, driven by add-ons and Agentforce upsells.
Salesforce anticipates a currency tailwind for the business due to the weakening US dollar in Q1. The company expects Q2 2026 revenue guidance of $10.11 billion – $10.16 billion, up 8% – 9% YoY and 7% – 8% in CC.
Is Salesforce a Good Investment?
Despite the current challenges, some analysts believe Salesforce is undergoing a transformation into a more profitable, shareholder-focused enterprise. With management's renewed focus on operating discipline, Salesforce's margins have increased substantially, and there is potential for further improvement. Investors should carefully consider these factors and conduct thorough research before making any investment decisions regarding Salesforce stock.