Hook / Thesis
I am buying more Salesforce (CRM). The company continues to deliver rising revenue, expanding operating income and stronger reported EPS while keeping long-term debt modest relative to its asset base. Recent results show revenue of $10.236 billion in the quarter ended 07/31/2025 and net income of $1.887 billion, with diluted EPS of about $1.96. Those are not the numbers of a business in retreat — they are the sort of outcomes you expect when a dominant SaaS platform tightens pricing discipline, extracts more revenue per customer and starts to monetize AI-driven features at scale.
My view is pragmatic: Salesforce is expensive relative to legacy software names, but the combination of steady top-line growth, margin improvement and a low net-debt profile (long-term debt of $8.436 billion on total assets of $97.573 billion) gives me confidence to add here with a risk-managed plan.
What Salesforce does and why it matters
Salesforce provides enterprise cloud solutions centered on Customer 360 - a unified platform connecting sales, service, marketing, commerce and analytics. The platform mix (Service Cloud, Marketing Cloud, Commerce Cloud, the Salesforce Platform plus integration via MuleSoft and analytics via Tableau) positions the company squarely where enterprise IT budgets are being reallocated: toward data, workflow automation and AI-enabled customer interactions.
Why the market should care now: two structural forces are converging. First, companies continue to consolidate customer data and move sales/marketing/service systems to vendor platforms that can unify identity, signals and automation. Second, adoption of generative and decision intelligence tooling is raising the dollar-per-customer ceiling for vendors that own the customer interaction layer. Salesforce sits at that intersection.
Recent numbers that support the buy
- Revenue trend - The quarter ended 07/31/2025 (fiscal Q2 2026) produced $10.236 billion in revenue, up sequentially from Q1 (02/01-04/30/2025) which was $9.829 billion. That sequential growth in a large base is meaningful.
- Profitability - Operating income in Q2 was $2.332 billion, up from $1.942 billion in the prior quarter. Net income rose to $1.887 billion (diluted EPS ~$1.96). The company is converting scale into operating leverage.
- Cash generation and capital allocation - Reported net cash flow in the most recent quarter was negative on a headline basis, but operating cash flow remains positive (Q2 operating cash flow reported as $740 million while prior quarters show larger operating inflows; the cadence appears lumpy). The balance sheet shows $8.436 billion of long-term debt against total assets of $97.573 billion and equity of $61.328 billion. Management is returning cash via a quarterly dividend (recently around $0.416 per share) and continuing financing activity consistent with buybacks and shareholder returns.
- Earnings momentum - Salesforce beat EPS expectations in its most recent reported calendar earnings (12/03/2025), with EPS actual $3.25 vs estimate $2.89. The beat indicates continued margin upside from product mix and AI-driven monetization.
Valuation framing
The dataset does not publish an official market cap, but using the most recent close (about $266) and diluted share count (~962 million diluted shares from the quarter) implies an approximate market capitalization near $256 billion. If you annualize recent quarterly EPS (~$1.96 in Q2 annualized to ~$7.8), that points to a forward-ish P/E near the mid-30s (rough ballpark ~34x). That premium is not cheap, but it is priced for growth and margin expansion driven by AI and cross-cloud adoption.
I would not call this a deep value buy. This is a quality growth allocation: you are paying for durable revenue streams, the largest enterprise CRM footprint and the optionality of platform monetization. If you need cheap multiples, you will wait for a pullback; if you need durable secular exposure to customer-data- and AI-led enterprise spend, Salesforce is a reasonable place to be long.
Trade plan - Actionable entry, stops and targets
My personal trade plan as a risk-managed add:
- Action: Add to position on pullbacks or strength within range.
- Entry zone: $260 - $275 per share. This brackets the recent close (~$266) and provides a reasonable entry while limiting downside from a failed momentum spike.
- Initial stop-loss: $230 per share. That is roughly a 13-14% stop from the top of the entry band and protects against a deeper mean-reversion if macro risk emerges or results disappoint.
- Targets:
- Target 1: $320 (~20% from mid-entry) - near-term target if momentum and AI monetization continue to convince investors.
- Target 2: $380 (~45% from mid-entry) - a 12-18 month target if revenue growth and margin expansion stay on plan and AI features drive higher ARPU across large accounts.
- Position sizing: Keep the new tranche to a modest portion of your total CRM exposure; scale in or average down if the stop is not hit and fundamentals progress.
- Time horizon: Position trade - 6 to 18 months. Re-evaluate as catalysts hit.
Catalysts I am watching
- AI product monetization - announcements and adoption of generative AI features in Sales Cloud / Service Cloud that generate incremental ARR or higher seat pricing.
- Enterprise renewals and ARPU expansion - especially among large customers where cross-sell into Marketing/Commerce/Platform lifts average contract value.
- Shareholder returns - continued buybacks or progressive dividend increases that reduce share count and improve EPS per share over time.
- Quarterly cadence - consistent beats on EPS and operating income that narrow the premium P/E via multiple expansion based on execution.
Risks and counterarguments
I want to be candid: there are clear reasons this trade can break down. Below are the main risks and a specific counterargument that would temper my buying.
- Execution risk on AI monetization: Building features is one thing; charging meaningful incremental ARR is another. If AI features fail to convert trial users into paid licenses or if pricing is watered down to win deals, margin expansion will disappoint.
- Macro / IT spend slowdown: Salesforce sits in a cyclical part of tech spend. A macro shock or large corporate pause on IT budgets could compress new bookings and extend the sales cycle, pressuring stock even if long-term thesis remains intact.
- Competitive pressure: Large cloud vendors and specialized AI players are aggressively entering the revenue/marketing automation and analytics space. Erosion of share in key segments (marketing automation, commerce) would hit growth.
- Valuation sensitivity: CRM is priced for growth. A single quarter miss (top-line or margin) could lead to outsized multiple contraction even if fundamentals are sound; high multiples amplify downside.
- Cash flow cadence and capital allocation uncertainty: Operating cash flow in the most recent quarter was smaller versus earlier periods, showing lumpiness. If free cash flow weakens while buybacks or dividend increases continue, balance-sheet flexibility could be affected.
Counterargument that would give me pause: If the company starts to see sequential decline in large-account renewals or a material slowdown in new ARR from Marketing/Commerce segments for two consecutive quarters, I would stop adding and likely trim. That pattern would point to either competitive displacement or saturation of current up-sell levers.
What would change my mind
- I would reduce exposure if Salesforce reports two consecutive quarters of decelerating ARR or bookings, or if gross churn among large customers increases materially.
- I would also re-assess if long-term debt materially rises without commensurate cash-flow improvement, or if management shifts capital allocation away from buybacks/dividends without clear strategic rationale.
- Conversely, I would add more aggressively if management proves repeatable pricing power for AI features (evidence: measured ARPU lift, higher deal sizes) and operating margins keep expanding.
Bottom line
Salesforce is a core large-cap cloud franchise with favourable secular positioning: a huge installed base, an expanding platform and clear optionality from AI. The most recent quarter shows accelerating revenue and improved operating income, and the balance sheet is comfortable with long-term debt around $8.4 billion against sizeable assets and equity.
That said, the stock is priced for execution. My approach is pragmatic: I am adding within $260-275, disciplined with a $230 stop and clear targets at $320 and $380. This gives reward on AI tailwinds and margin expansion while protecting capital if competition or macro weakness reasserts itself.
If you are a growth investor who wants exposure to enterprise AI and CRM consolidation, Salesforce remains a high-conviction name. Proceed with position sizing discipline and monitor renewals, ARPU trends and the cadence of operating cash flow closely.
Disclosure: This is not investment advice. I own shares and am increasing my position in CRM as part of a diversified portfolio; do your own due diligence before trading.