Salesforce stock soared after a strong earnings report and new AI partnership, but Morgan Stanley remains cautious, raising its price target while highlighting risks from AI-native competitors.
Salesforce shares rose more than 22% this week after the company reported quarterly earnings that exceeded analyst expectations and announced an expanded partnership with AI firm Anthropic. The company posted a $2.6 billion unrealized gain from its Anthropic investment, driving an 87% year-over-year increase in net income for the quarter. However, this gain was not related to Salesforce's core software operations and did not reflect new customer revenue.
Salesforce raised its full-year revenue forecast and now expects annual revenue between $45.2 billion and $45.4 billion, up from its previous guidance.
Analyst Skepticism Amid Market Optimism
Morgan Stanley raised its price target for Salesforce by 27%, from $185 to $235, but maintained an Equal-weight rating. The firm noted that Salesforce's revenue exceeded Wall Street consensus by only about $20 million, indicating steady but not exceptional growth in its core business. This cautious stance contrasts with the broader analyst consensus, where nearly 75% rate Salesforce stock as Overweight or equivalent.
Salesforce's AI and data businesses are expanding rapidly: the combined annualized recurring revenue (ARR) from Agentforce and Data Cloud AI reached nearly $3.9 billion, representing over 210% year-over-year growth.
Retention and Bookings Trends
Despite concerns that AI-native competitors could challenge Salesforce's market position, recent data shows customer attrition near record lows and longer contract durations across major product lines. Net new average order value reached a four-year high, indicating increased new customer commitments rather than just renewals.
Agentforce, Salesforce's flagship AI agent product, reported annualized revenue above $1.5 billion, growing over 240% year over year, up from 205% in the previous quarter. Bookings for the premium tier more than doubled from the first quarter, according to Morgan Stanley.
Valuation and Risks
Morgan Stanley's scenario analysis outlines a range of possible outcomes. Its bear case projects a $90 share price if AI-native competitors slow Salesforce's growth to mid-single digits over three years. The base case, which aligns with the new $235 target, assumes continued double-digit revenue growth supported by acquisitions. The bull case envisions a $350 price if Agentforce adoption drives 15% annual revenue growth through 2029.
Despite positive trends, Morgan Stanley remains cautious. Organic subscription revenue growth, excluding currency and acquisitions, slowed to about 6% from 7% in the prior quarter. Legacy segments such as Commerce and Tableau continue to face challenges, and their stabilization timeline is uncertain. At approximately 28 times projected 2027 earnings, Salesforce is considered fairly valued rather than undervalued.
Broader Context
The debate over Salesforce's outlook reflects a broader challenge for established enterprise software firms: integrating AI agents into legacy platforms while facing competition from AI-native startups. The next few quarters of booking and retention data will be critical in determining whether Salesforce can sustain its growth beyond one-time investment gains. For comparison, ServiceNow's recent price target increase amid easing AI concerns is discussed in this related analysis.
For the quarter ended July 31, Salesforce reported total revenue of $9.2 billion, up 11% year over year, with subscription and support revenue comprising the majority. The operating margin rose to 21.5%, reflecting cost controls and the Anthropic investment gain. Shares closed at $228.50 on August 27, up 22.6% for the week, and Salesforce's market capitalization now exceeds $220 billion.
Performance obligations such as cRPO are closely monitored by investors as they provide a forward-looking view of a software company's revenue pipeline. Unlike recognized revenue, cRPO reflects the value of signed contracts not yet fulfilled, offering early insight into future growth or slowdowns. For Salesforce, sustained cRPO growth signals healthy demand and customer confidence, but the metric remains sensitive to shifts in technology and competitive dynamics.
