Key Takeaways: Salesforce beat Q2 earnings and revenue expectations, but its stock fell 5% after-hours on weak guidance. Revenue grew 10% year-over-year to $10.24 billion, but the Q3 forecast disappoi...
Salesforce Inc. shares tumbled more than 5% in after-hours trading on Wednesday despite the cloud software giant beating Wall Street expectations for its fiscal second quarter, as investors expressed concern over the company's cautious revenue guidance and slower-than-expected returns from artificial intelligence investments.
The enterprise software leader reported adjusted earnings of $2.91 per share on revenue of $10.24 billion for the quarter ended July 31, surpassing analyst estimates of $2.78 per share and $10.14 billion in revenue.
However, the company's forecast for the current quarter fell short of expectations, prompting the sell-off that has become characteristic of investor sentiment toward the AI software sector.
Salesforce reported second-quarter revenue of $10.24 billion, up 10% year-over-year and 9% in constant currency, with subscription and support revenue of $9.7 billion, up 11% year-over-year. The 10% growth rate marked an acceleration from recent quarters, as the company had struggled with single-digit revenue growth since mid-2024.
However, investors focused on the company's third-quarter guidance, which projected revenue of $10.24 billion to $10.29 billion. The midpoint of that range was below Wall Street's target of $10.29 billion, according to analysts surveyed by LSEG.
"We delivered an outstanding quarter to close out the first half of the year, with strong performance across revenue, margin, cash flow, and cRPO—and we remain on track for fiscal 2026 to be a record year with nearly $15 billion in operating cash flow," said Marc Benioff, Chair and CEO of Salesforce.
The stock decline reflects broader investor concerns about Salesforce's ability to monetize its artificial intelligence investments. Going into Wednesday's report, Salesforce was down 23% for the year, lagging behind all but one stock in the Dow and trailing all other large-cap tech companies.
Salesforce has racked up over 6,000 paid Agentforce deals, Benioff said, referring to the company's flagship AI platform that allows businesses to create automated agents for customer service and other tasks. However, analysts remain cautious about the technology's near-term revenue impact.
"Salesforce is having to show customers the money before they're willing to spend on Agentforce," said Rebecca Wettemann, analyst at Valoir. "This is reasonable given the disillusionment that many companies have experienced with early DIY AI science projects, many of which were real money pits".
In a stark illustration of AI's workplace impact, CEO Marc Benioff revealed that Salesforce has cut about 4,000 customer service roles as AI agents step in to do the work, with the technology now handling over a million consumer conversations and reducing support costs by 17% since around the start of 2025.
Benioff said the company has "reduced the number of heads we have in service and support because we have supplemented that with agents", marking a shift from his previous statements that AI wouldn't lead to widespread white-collar job displacement.
Despite the market reaction, Salesforce delivered robust financial performance across key metrics. The company achieved its tenth consecutive quarter of operating margin expansion, with non-GAAP operating margin reaching 34.3%. Current remaining performance obligation reached $29.4 billion, up 11% year-over-year, indicating strong future revenue visibility.
The company's Data Cloud and AI products showed particularly strong growth, with revenue jumping 120% year-over-year to $1.2 billion. The company noted it had closed over 12,500 deals since launching Agentforce, of which 6,000 are paid.
"Our results are absolutely fantastic and our guidance is also, you know, is always appropriately conservative," Benioff said in a Wednesday interview with CNBC's Jim Cramer, defending the company's cautious outlook.
Looking ahead, Salesforce raised the low end of its full-year fiscal 2026 revenue guidance to $41.1 billion to $41.3 billion, representing 8.5% to 9% year-over-year growth. However, this remains below Wall Street's forecast of approximately $41.4 billion.
The earnings report underscores the challenge facing enterprise software companies in the AI era: while the technology promises significant productivity gains and cost savings, investors are demanding faster revenue growth and clearer monetization strategies.
Key takeaways OpenAI has signed a multi-year, $10 billion agreement with AI chipmaker Cerebras Systems to secure computing infrastructure. The deal will deliver 750 megawatts of computing power throug...
KEY TAKEAWAYS: xAI implemented restrictions preventing Grok from editing images of real people in revealing clothing after global backlash California Attorney General Rob Bonta launched investigation...
Key takeaways TSMC reported fourth-quarter net income of NT$505.74 billion, beating analyst expectations and setting a new record. Fourth-quarter revenue reached NT$1.046 trillion, up 20.5% year over...
