By Al Root and Jacob Sonenshine

Software, which was once eating the world, has caught a stomach bug -- and Salesforce's "AI virus" has investors sweating. The stock can rally as artificial-intelligence fears fade and management demonstrates commitment to improving profitability.

The software sector, once a stalwart on Wall Street, has been whipsawed over the past few years. A post-Covid boom in digitization ran into an interest-rate-hiking cycle that crushed valuations in 2022. Then, ChatGPT entered investors' consciousness. Now, investors are in "constant debate over AI winners and losers," says BTIG analyst Nick Altman.

From 2009 to 2019, software stocks in the S&P 500 returned almost 20% annually. Returns were double that from the end of 2019 to the end of 2021, before software shares cratered 30% in 2022. The sector has bounced back since then, but performance has diverged. Among the winners is Palantir Technologies, which has returned more than 200% annually for the past three years. Salesforce stock has lost about 20% a year over that span.

Salesforce has been deemed an AI loser. A year ago, shares of the San Francisco--based enterprise software company traded at $369 per share, making the company worth approximately $350 billion, or nine times estimated 2025 sales. The stock is now almost 30% from all-time highs, and trading at under six times estimated 2026 sales.

At issue: Salesforce's Agentforce platform, which makes use of AI agents to perform various sales, service, and marketing tasks. "The debate on CRM's execution with Agentforce will likely continue in the years ahead, " says BTIG's Allan Verkhovski, who rates Salesforce stock Buy, with a $335 price target. Still, "the current valuation suggests to us that some investors are pricing in CRM's demise."

That is too bearish. Expectations for AI-related revenue are about as low as they can get, especially now that Agentforce is gaining traction. The annual recurring revenue from Agentforce grew 330% year over year in the company's fiscal third quarter, to $540 million. More than half of new Agentforce bookings came from existing customers, versus just over 40% in the second quarter.

AI-related revenue, while growing, is still a sliver of the projected calendar year 2026 sales of almost $46 billion. More important, calendar year 2026 sales are expected to rise about 11% over 2025 levels, an acceleration from 2025's expected 10% growth -- and well above the lowest growth since the pandemic of about 9% in 2024. Growth looks like it has bottomed.

That call emanates from Salesforce's current remaining performance obligation, or CRPO, the revenue booked for the next 12 months. Management guided for CRPO to grow 9% organically in the current quarter, and Chief Financial Officer Robin Washington said she expects that to support revenue growth acceleration.

With that backdrop, trading at eight to 10 times sales "makes economic sense" for a software company, says Oakmark Funds portfolio manager Bill Nygren, who adds, "Not too crazy a number."

Other might not agree, but they should recall the rule of 40 in software. Top-line growth and profit margins should sum to 40, helping a software stock reach a "normal" valuation. Currently, S&P 500 software stocks trade for nine times estimated sales for the coming 12 months.

Salesforce violated the rule of 40 for much of 2025 and was punished by investors. Nygren says CEO Marc Benioff's "track record at growth value has been fantastic," adding that Benioff is more concerned about profitable growth these days.

Salesforce's profit margins have improved by more than 15 percentage points from 2021 lows, to 33% this year. As long as margins keep improving, Salesforce could achieve the rule of 40 by simply by meeting revenue growth expectations.

If that happens, investors will forget all about Salesforce's artificial-intelligence woes. "In 2025, AI doubters obsessed about the monetization of AI," says Daniel Newman, CEO of technology research firm Futurum. He expects that "obsession" to fade in 2026 as revenue growth accelerates and more companies adopt AI tools from existing players.

Increased adoption requires customers to see that AI agents create higher efficiency not only in theory, but in reality. Stifel analyst Brad Reback writes that he expects customers to "move from proof of concept to production with agents."

If that spurs faster growth, shares can return to eight times estimated calendar year 2026 sales. That implies a share price of about $390, up 50% from recent levels.

The immediate risk: Salesforce misses current estimates. Even if growth remains the same, that would likely be insufficient for the market. In the long term, AI trends outside the company's purview could replace Salesforce's own agents. But as long as management continues to improve its product's effectiveness, that risk will fade.

Sizable gains don't require Herculean assumptions, just basic business execution. That feels like a smart bet heading into a new year that will surely bring more AI drama.

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December 24, 2025 08:00 ET (13:00 GMT)

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