Can Salesforce AI Layoffs and New Contracts Signal a Turning Point for the Stock in 2025?

Wondering what to make of Salesforce these days? You are not alone. With the stock closing recently at $242.76, it is natural to feel caught between tales of AI-driven disruption and uncertainty about where the company is headed next. Over the past week, Salesforce shares slipped 3.2%, but have still eked out a 2.4% gain over the past month. On the flip side, the year-to-date decline stands at a hefty 26.6%, and the one-year return is down 4.1%. Yet, zoom out to three years, and the story shifts to a robust 61.6% gain, with the five-year mark just barely positive at 0.9%.

Recent headlines have certainly pushed concerns and optimism back and forth. The big buzz has centered around Salesforce’s bold bet on AI automation, with the company trimming nearly half of its customer support staff as AI agents take the reins. While that shakes up cost structures, it also opens questions about future growth and risk. In the meantime, Salesforce is eyeing fresh government contract opportunities after the Navy and Air Force signaled plans to cancel massive HR software projects, potentially paving the way for a new revenue stream. The company’s appetite for transformative bets is clear, with discussions underway about a $750 million investment in AI software firm Genesys. Not surprisingly, these moves have left investors and analysts recalibrating their outlooks, as reflected in recent price target tweaks.

So, with a valuation score of 4 out of 6 (put simply, Salesforce looks undervalued on four checks but not across the board), is the stock a hidden bargain or a value trap? Let’s break down exactly how valuation experts size up Salesforce. Later, we will spotlight an even smarter way to look at value that most investors miss.

Why Salesforce is lagging behind its peers

Approach 1: Salesforce Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and then discounting those projections back to today’s value. This approach essentially asks: if you owned the business and pocketed all future cash, what would those flows be worth to you right now?

For Salesforce, the DCF is built on a 2 Stage Free Cash Flow to Equity model. As of the latest figures, the company is generating $12.4 Billion in Free Cash Flow. Analysts forecast continued growth, with projections reaching roughly $16.9 Billion by 2030. While detailed analyst estimates are provided through 2029, later years rely on extrapolations to give a longer-term glimpse. This robust cash flow outlook suggests the underlying business remains healthy and growing.

After analyzing the numbers, the DCF model arrives at an estimated intrinsic value of $282.87 per share. Compared to the recent share price of $242.76, Salesforce is trading at a 14.2% discount. This indicates that, based strictly on cash flow fundamentals, the stock appears to be undervalued at present.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Salesforce.

Our Discounted Cash Flow (DCF) analysis suggests Salesforce is undervalued by 14.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Salesforce Price vs Earnings (PE)

For established, profitable companies like Salesforce, the Price-to-Earnings (PE) ratio is a widely used valuation metric because it links a company’s stock price directly to its actual earnings power. A higher PE often reflects expectations of strong future growth, while a lower PE can suggest lower anticipated growth or elevated risk. What is “normal” for PE can vary not only by company performance, but also industry dynamics and market sentiment.

Salesforce currently trades at a PE ratio of 34.7x. This aligns closely with the software industry average PE of 34.9x and is notably below the average PE of 53.5x seen among its peers. Traditional valuation analysis might stop there, but that risks oversimplifying the story.

The “Fair Ratio” is Simply Wall St’s fair PE estimate for Salesforce, which stands at 44.5x. Unlike a basic peer or industry comparison, the Fair Ratio considers a broader mix of factors, including Salesforce’s actual earnings growth, profit margin, its position in the industry, company size, and risk profile. This provides a more tailored and insightful benchmark for what Salesforce “should” trade at, rather than just assuming all software stocks are interchangeable.

With Salesforce's current PE (34.7x) falling significantly below its Fair Ratio (44.5x), the stock appears attractively undervalued by this measure.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Salesforce Narrative

Earlier we mentioned that there’s an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story about a company, the reasoning behind your view on its fair value, how you expect its revenues, earnings, and margins to unfold, and the bigger picture trends you think matter most. Narratives connect a company’s story to a financial forecast and then turn those inputs into a fair value, making it easy to see how your perspective compares to others.

On Simply Wall St’s Community page, millions of investors use Narratives to combine insights, estimates, and personal viewpoints into simple, transparent forecasts. You can use them to see whether Salesforce’s price aligns with your belief in its future and adjust your buy or sell decisions if things change. As new news breaks or quarterly results arrive, Narratives are automatically refreshed so your analysis always stays current.

For example, some Salesforce investors see robust cloud leadership and AI adoption unlocking 13% annual revenue growth and a fair value of $314 per share, while others expect just 9.6% annual revenue growth and a fair value closer to $221 per share. Narratives let you choose and refine your own investment story, making your decisions clearer and more confident.

For Salesforce, we'll make it really easy for you with previews of two leading Salesforce Narratives:

🐂 Salesforce Bull Case

Fair Value: $334.68

Current valuation: 27.5% below narrative fair value

Forecast Revenue Growth: 9.6%

• AI automation and workflow integrations are strengthening customer adoption, boosting switching costs, and supporting sustained revenue and margin growth.
• Mid-market and SMB success, along with strong operating discipline and capital returns, are broadening the customer base and enabling scalable profitability.
• Risks include regulatory hurdles, fierce competition from tech giants, and execution challenges with acquisitions. All of these could pressure revenue growth and margins.

🐻 Salesforce Bear Case

Fair Value: $223.99

Current valuation: 8.4% above narrative fair value

Forecast Revenue Growth: 13%

• Salesforce is leading in the enterprise cloud, but market growth assumptions are elevated and may be difficult to sustain as efficiency gains are largely realized.
• Dependence on large enterprise customers and a concentrated revenue portfolio introduces volatility and risk, particularly as competition intensifies and markets saturate.
• The company is expected to return more capital to shareholders through buybacks, but future margin expansion could be limited as competitors move aggressively on price and specialized CRMs.

Do you think there's more to the story for Salesforce? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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