By Jacob Sonenshine
We are no longer recommending Salesforce stock. The growth picture hasn't improved much and there are other areas of the market to consider buying.
Salesforce stock is down 34% since Barron's recommended it in late December. Our thesis was that the company would soon prove its artificial intelligence offerings would bring about an acceleration in overall sales growth. It hasn't panned out that way. The market seems convinced that the days of high growth are behind -- not ahead -- of Salesforce, as OpenAI and Anthropic pose a long-term threat to software application demand.
The company hasn't done enough to dispel that concern. Its fiscal year 2027 first quarter earnings release may have revealed moderately better-than-expected sales and earnings, but that doesn't make the growth look particularly strong.
Total revenue, excluding the $444 million from the recently-acquired Informatica, was about $10.7 billion, up 8.5% year over year. Recurring revenue from Agentforce and Data360 rose 130% to $2.3 billion. But total revenue growth still fell from fiscal 2026's 9.6%.
The deceleration looks too likely to continue for the market to change its tune on Salesforce. Management guided for full year 2027 sales that, excluding Informatica, are a little under $45 billion, corresponding to roughly 8% growth.
The AI business is doing much of the leg work for the moment, but other areas look likely to suffer -- possibly at the hands of AI. Chief Financial Officer Robin Washington said on the earnings call that the actual quarterly growth experienced a drag from "softness" in Tableau, a visual data analytics platform. Right now, customers can use Anthropic's Claude or OpenAI's ChatGPT for visual data. While Tableau is integrating technology from those AI platforms, it's still possible that Salesforce will lose Tableau customers to AI.
The point is that profit growth looks too weak for us to still call the stock a promising idea. Yes, sales will grow moderately in the near-term. And sure, profit margins should expand too -- as long as the company continues to exercise discipline on operating expenses. Analysts' call for 13% earnings per share growth in calendar year 2027 may yet prove reasonable. But if the company's AI efforts continue to underwhelm, then the next 12 months' earnings multiple -- currently down to just under 12 times versus the S&P 500's 20 times -- may not expand.
That creates a problem. If the multiple remains in place, the stock could theoretically gain in line with earnings growth. But there are better bets elsewhere. We recently recommended other software stocks that have even greater potential, and even names in other industries that can benefit from AI and have less volatility than Salesforce.
It's not that Salesforce can't perform well from here. It's a well-integrated company that continues to grow. It's just that having high conviction in explosive share price gains is eroding. So we're withdrawing our recommendation.
Jacob Sonenshine is a stock picks writer at Barron's Investor Circle and regular contributor to The Trader Column. His general focus is technology, consumer, industrial, and healthcare.
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June 11, 2026 01:40 ET (05:40 GMT)
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