Salesforce Is Undervalued Despite A Democratizing AI Market


  • Salesforce stock dropped ~20% after Q1 fiscal 2025 earnings, missing revenue expectations by ~$14 million. The negative sentiment was in anticipation of future growth challenges, but largely unwarranted.
  • Salesforce may face a future economy with highly democratized AI systems. This deflationary trend, also driven by mainstream robotics, may impact demand for Salesforce’s current AI pricing in ~15 years.
  • Despite risks, Salesforce remains a strong investment for the next decade. My conservative DCF model shows the company is roughly 20% undervalued. I reiterate my Buy rating.

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Salesforce Dropped 20% After Q1 Earnings

I covered Salesforce (NYSE:CRM) for the first time in February, and I put out a Buy rating, even though I warned of the valuation risk and mentioned that a smaller

Cloud-Based CRM (1999) Salesforce pioneered SaaS with its cloud-based CRM, disrupting traditional software and gaining market share.
AppExchange (2005) Launched AppExchange, fostering a third-party app ecosystem, extending CRM functionality, and enhancing platform value.
Strategic Acquisitions Expanded capabilities and market reach through acquisitions like ExactTarget, MuleSoft, Tableau, and Slack.
Einstein AI (2016) Introduced Einstein AI, embedding advanced analytics and automation into CRM, maintaining a competitive edge.
COVID-19 and Slack (2020) Supported remote work during the pandemic, acquiring Slack to enhance collaboration tools and demonstrating adaptability.

______________________ Salesforce Microsoft (MSFT) SAP (SAP) Oracle (ORCL) Adobe (ADBE)
FWD Revenue Growth 5Y Avg 19.69% 13% 4.41% 5.33% 15.73%
FWD Diluted EPS Growth 5Y Avg 16.75% 15.71% 3.16% 9.03% 19.72%
FWD Free Cash Flow Growth 5Y Avg 22.23% 12.69% 15.16% 7.16% 15.95%
TTM Net Income Margin 5Y Avg 7.23% 34.4% 15.44% 23.63% 30.3%
Equity-to-Asset Ratio 0.62 0.52 0.59 0.04 0.54
FWD P/E GAAP Ratio 38.5 35 60.5 31 37.5
FWD P/S Ratio 6 12.5 5.5 6 9.5

Analyst’s Disclosure: I/we have a beneficial long position in the shares of CRM, AMZN, GOOGL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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