In late 1999, a software salesman named Marc Benioff walked out of Oracle with a simple idea.
What if CRM software ran in a browser, not in a server room? His former boss, Larry Ellison, thought it was cute. Industry veterans called it a toy for small companies. For a while, they were right.
Until they weren't.
Within a decade, Salesforce (CRM) had rewritten the rules of enterprise software. Within two decades, it had become one of the most important platforms in business technology.
By December 2024, the stock was trading at $365. Today it sits at $185.
The business did not get cut in half - the fear of AI crushing software is what has driven this huge disconnection between value and price.
That gap between what Salesforce earns, what it generates in free cash flow, and what the market is currently willing to pay for it - that is where this investment case lives. At 14x forward earnings and 12x free cash flow for a company growing revenue at 10% with a $63 billion revenue target by FY2030, the price/quality relationship here is the most attractive it has been in years.
What the Company Does
Salesforce sells the software that runs the front office of the modern enterprise. Sales teams use it to track leads and close deals. Service teams use it to manage customer cases. Marketing departments use it to run campaigns. Finance teams use it for billing and revenue management.
The core product is the Customer 360 platform, which is a unified architecture that connects all of those functions, pulls data from across a business, and increasingly allows AI agents to act on that data automatically.
Revenue for fiscal year 2026 (ended January 31, 2026) came in at $41.5 billion, up 10% year over year. Subscription and support, which is the recurring, high-margin core segment, now represents roughly 96% of the total.
Free cash flow for FY26 reached $14.4 billion, up 16% year over year. Gross margins run at 77.6% and the company returned over $14 billion to shareholders in FY26 through buybacks and dividends.
At these levels and with these results, CRM is a mispriced compounder.
The Investment Thesis
The first reason to own CRM is Agentforce, and the numbers are starting to matter.
Agentforce launched in late 2024 as Salesforce's AI agent platform.
Agentic AI is the cause of so many of the AI disruption fears that have seen software names crushed this year. This essentially means a system that allows enterprises to deploy autonomous AI agents trained on their own customer data. By Q4 FY26, Agentforce ARR had reached $800 million, up 169% year over year, with over 29,000 deals closed - up 50% quarter over quarter. The company has processed over 19 trillion tokens through the platform and delivered 2.4 billion Agentic Work Units to date.
What makes Agentforce structurally different from the generative AI products that preceded it is the data layer underneath it.
Enterprise AI agents are only as useful as the data they can act on. Salesforce has spent 25 years building the most comprehensive store of customer interaction data in enterprise software. Every sales conversation, every service case, every marketing touchpoint. That data lives inside Salesforce's Customer 360.
When Benioff says that "enterprise data is highly controlled, governed, and secured, unlike consumer AI training data," he is describing a real moat. A company can deploy a Microsoft Copilot agent, but it cannot route that agent through two decades of structured CRM data without either building the integration stack or already being a Salesforce customer.
This is the example of a business using agentic AI and the new pricing model that will come with it effectively. The fear around Salesforce and other software businesses is that agentic AI will render them unnecessary rather than strengthened.
Marc Benioff described it on the earnings call simply saying:
"Agentic AI is a tailwind for our business, and we're well on our way to $63 billion in revenue in FY30."
That last number matters.
A $63 billion revenue target by FY2030 implies an 11% compound annual growth rate from the current base - not extraordinary for a software company, but notable when the market is pricing the stock as if growth is over.
The second reason is the valuation reset, which is more extreme than it appears.
The stock currently trades at a forward P/E of about 14x and an EV/FCF of 12.4x. The PEG ratio is 0.77 which passes my initial GARP test for looking deeper.
By comparison, ServiceNow, a legitimate competitor and frequently cited peer, trades at over 25x forward earnings. Even accepting that ServiceNow deserves a premium for its faster growth rate, the current gap between the two valuations implies that investors have written off Salesforce's ability to accelerate.
The repricing has been almost entirely sentiment-driven.
The fear that AI agents make CRM software obsolete is the same fear that drove both CRM and ServiceNow to 52 week lows in February. ServiceNow has since partially recovered as investors decided its workflow automation is AI-additive rather than AI-threatened. The same logic applies to Salesforce, with the added argument that Salesforce is not just a beneficiary of the agentic shift. Clearly Salesforce it is actively building and monetizing the infrastructure for it.
The remaining performance obligation tells a different story than the sentiment. Total RPO hit $72 billion in Q4, up 14%, and current RPO, which represents the contracted revenue expected within 12 months, surprisingly rose 16% to $35.1 billion. That is a forward revenue pipeline that the stock price does not reflect and tells a growth story rather than a business in decline.
The third reason is horizontal expansion.
Salesforce is going after the $50 billion IT Service Management market with Agentforce IT Service, launched into general availability in October 2025. By late February 2026, over 180 organizations had already selected the product, including companies actively replacing legacy ServiceNow implementations. This is new total addressable market that the base business was not capturing two years ago.
One early adopter, PenFed, which is one of the largest credit unions in the country, projected a 30% reduction in operating costs. CoolSys, a commercial cooling infrastructure company, is consolidating away from ServiceNow entirely. These are production deployments generating real cost savings on a measurable timeline.
Competition and Macro Context
Salesforce competes on three fronts simultaneously.
Microsoft is the most dangerous in my view. Copilot Agents run on Azure infrastructure and inside the Microsoft 365 suite that most enterprises already use. Microsoft's distribution advantage is real and not going away.
ServiceNow is encroaching on the CRM side while Salesforce moves into ITSM, creating a full-scale platform war between two companies with similar enterprise footprints.
SAP and Oracle compete on the ERP layer and have their own AI stories developing.
Of all competitors, ServiceNow is the more immediate competitive pressure and the more interesting one.
CEO Bill McDermott has moved directly into CRM, publicly stating that ServiceNow and Microsoft are "expanding their alliance to accelerate disruption in the CRM category." ServiceNow's core architectural argument - a single unified data model versus Salesforce's acquired and integrated cloud stack - resonates with enterprise IT buyers who have been burned by integration complexity.
ServiceNow's CRM business has already crossed $1 billion in annual revenue. It is growing faster than Salesforce's core. The company is simultaneously defending its ITSM base against Agentforce IT Service while attacking Salesforce's CRM business from the workflow side.
That is a two-front war being fought by both companies at once, and the outcome is genuinely unclear.
What gives Salesforce the better side of that standoff, at least in the near term, is data.
Forrester analyst Charles Betz described Agentforce's entry into ITSM as the most credible threat ServiceNow has faced to date - not because Salesforce has built a more sophisticated ITSM product, but because Salesforce customers with established CRM deployments represent a captive install base that ServiceNow was never invited into.
Adding an ITSM SKU to an existing Salesforce relationship is a different sale than displacing a twelve-year ServiceNow deployment. Salesforce is playing offense with an installed base; ServiceNow has to earn every displacement in CRM from scratch.
The macro picture cuts both ways. Enterprise software spending typically lags broad economic weakness.
Corporate IT budgets have been cautious through early 2026, and the Middle East conflict has introduced oil-driven inflation concerns that are complicating rate expectations. A genuine recession scenario would likely delay deal cycles and pressure CRM's growth timeline.
On the other side, AI automation spending is holding up better than traditional SaaS, because the business case is quantifiable in a way that prior enterprise software rarely was.
Valuation - Cheap, Fair, or Expensive?
At $185 per share, Salesforce trades at 14x forward earnings and 12.4x free cash flow. The trailing P/E is 23.6x, roughly 89% below its ten-year historical average, though that historical average was inflated for years by near-zero GAAP earnings.
The more useful comparison is the current EV/EBITDA of approximately 12x against a company generating over $14 billion in annual free cash flow, growing that FCF at 16% per year, and guiding $45.8–$46.2 billion in revenue for FY27.
For context, Salesforce's all-time high of $365.07 in December 2024 implied a forward P/E above 35x on then-current estimates.
The multiple compression since then is almost entirely sentiment-driven, tied to fears that AI disrupts SaaS broadly. Those fears are not irrational, but they appear to be overpricing the probability of disruption for a company that is itself deploying AI agents at scale and generating nearly a billion dollars of ARR from them within two years of launch.
I think the fair value for CRM is in the $260–$280 range over a 12-to-18-month horizon, representing a recovery toward 18–20x forward earnings.
Even that is still a discount to historical averages but appropriate for a business with moderating growth and genuine AI monetization in motion.
What Could Go Wrong
The most legitimate bear case is platform disruption.
If AI agents, whether they be from Microsoft, Anthropic, or an enterprise-native startup, replace the workflow layer where Salesforce currently lives, the entire economic model changes. The fear is not that CRM software dies slowly; it's that it dies quickly, the way BlackBerry did when the iPhone arrived.
Benioff's Agentforce pivot is a bet that Salesforce becomes the operating system of the agentic enterprise rather than a casualty of it. That bet could be wrong.
Integration complexity is a second risk. Salesforce has grown through acquisition - having acquired MuleSoft, Tableau, Slack, Informatica - and the architecture is genuinely sprawling. ServiceNow's single-platform model is a real competitive advantage in enterprise deployments, and large customers do occasionally cite Salesforce's complexity as a reason to consolidate elsewhere. Every new SKU makes the sales motion more complex.
Finally, FY27 guidance of $45.8 - $46.2 billion assumes organic revenue re-acceleration in the second half of the year. If Agentforce deals slip to H2 without materializing, or if enterprise spending weakens more broadly, guidance comes down and the stock finds a lower floor.
My Take
I think CRM is genuinely cheap for what you are getting.
A $41 billion revenue business growing at 10%, generating $14 billion in free cash flow, returning nearly all of it to shareholders, with an emerging AI product doing $800 million in ARR and a $35 billion contracted revenue backlog.
The entry range I find compelling is $175–$200.
The next major catalyst is Q1 FY27 earnings, expected May 26, 2026, where Agentforce deal velocity and the first organic growth acceleration signal will be the two numbers that matter most. If Agentforce ARR crosses $1.5 billion and cRPO growth holds above 13%, the re-rating begins.
I do not currently hold a position in CRM but intend to initiate one in this range.
The Earnout Investor provides analysis and research but DOES NOT provide individual financial advice. Jamie Dejter may have a position in some of the stocks mentioned. All content is for informational purposes only. The Earnout Investor is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.