AI Automation And Digital Reinvention Will Drive Industry Transformation

Key Takeaways

• AI-driven automation and workflow integrations are boosting customer adoption, raising switching costs, and paving the way for sustained revenue and margin growth.
  
• Success in mid-market and SMB segments, paired with strong operating discipline and capital returns, is broadening the customer base and enabling scalable profitability.
  
• Rising competition, regulatory challenges, and execution risks from acquisitions threaten Salesforce's market share, pricing power, and revenue growth in an evolving technology landscape.

Catalysts

Provides customer relationship management (CRM) technology that connects companies and customers together worldwide.

• Salesforce's ongoing integration of AI and agent-based automation (Agentforce, Data Cloud) into its product suite is driving rapid adoption, evidenced by 40% of new agentic bookings coming from existing customers expanding usage, and triple-digit growth in Data Cloud and AI ARR; these trends suggest expanding average contract values and a pathway to structurally accelerated revenue growth.
  
• Organizations across industries are prioritizing digital reinvention to improve productivity and customer engagement-manifested in rapid pilot-to-production moves for agentic solutions (e.g., DIRECTV, Falabella, Under Armour) and shortened sales cycles-positioning Salesforce to capture larger wallet share and unlock additional high-margin expansion opportunities.
  
• The extension of SaaS via natively embedded workflow automation, cross-cloud data harmonization, and conversational interfaces (e.g., Slack-first ITSM and HR agents) increases customer stickiness, protects against commoditization, and raises switching costs, laying the foundation for sustainable long-term revenue and margin enhancement.
  
• Growing focus and success with mid-market and SMB segments-supercharged by AI capabilities that level the playing field for smaller businesses-broadens Salesforce's addressable market, diversifies the revenue base, and supports increased sales productivity per representative, translating to scalable topline and bottom line growth.
  
• Continued operating discipline, reflected in sequential operating margin improvement and a major buyback
• and capital return program funded by robust cash flow generation, provides a cushion for strategic reinvestment while enhancing per-share metrics and supporting earnings growth.

Salesforce Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Salesforce's revenue will grow by 9.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.9% today to 19.9% in 3 years time.
• Analysts expect earnings to reach $10.3 billion (and earnings per share of $10.33) by about September 2028, up from $6.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $9.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.0x on those 2028 earnings, up from 36.0x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
• Analysts expect the number of shares outstanding to decline by 0.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.54%, as per the Simply Wall St company report.

Salesforce Future Earnings Per Share Growth

Risks

• The accelerating shift toward low-code/no-code platforms and AI-driven automation threatens to commoditize traditional CRM and workflow solutions, potentially decreasing Salesforce's differentiation and reducing its pricing power, which could negatively impact both revenue growth and margins.
  
• Heightened regulatory scrutiny and the expansion of global data privacy legislation (such as GDPR and industry-specific compliance requirements) could raise compliance costs, complicate cross-border data operations, and limit Salesforce's ability to monetize its data cloud offerings, creating headwinds for revenue and net margins.
  
• Salesforce's ongoing acquisitions and aggressive M&A strategy, while intended to accelerate innovation, introduce integration risks and greater operational complexity; failure to execute on product consolidation and synergy realization could lead to increased expenses and weighed-down net margins.
  
• Intensifying competition from hyperscalers and large technology companies (e.g., Microsoft, Google, Amazon)-who are increasingly bundling CRM and AI capabilities into their enterprise suites-poses a risk to Salesforce's market share and could result in increased pricing pressure, directly affecting recurring revenue growth.
  
• As customers consolidate IT vendors and optimize software spending-especially during macroeconomic slowdowns-Salesforce's reliance on subscription-based revenues and upsells to existing accounts exposes it to churn risk and slower expansion rates, which could constrain top-line revenue growth and long-term earnings.

Valuation

• The analysts have a consensus price target of $334.677 for Salesforce based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $430.0, and the most bearish reporting a price target of just $221.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $51.9 billion, earnings will come to $10.3 billion, and it would be trading on a PE ratio of 39.0x, assuming you use a discount rate of 8.5%.
• Given the current share price of $252.06, the analyst price target of $334.68 is 24.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.