By Dan Gallagher

Salesforce has always been the poster-child for its particular corner of the technology world. That job has recently gotten a lot harder.

Salesforce isn't the largest company providing enterprise software designed for corporate customers -- Microsoft and Oracle both generate much more in annual revenue. But those other two also run their own giant cloud computing networks that are fetching strong new business powering AI workloads, such as those generated by ChatGPT. Salesforce's business is fully dependent on selling cloud-based software services to large businesses.

As such, Salesforce is now the largest company under a growing cloud of existential worry about the future of software businesses in the age of AI. The ability of generative-AI services to produce workable computer code on command could theoretically kill the need for dedicated software companies, if people without coding talent can simply ask an AI chatbot to generate software for any specific task. Salesforce shares have slumped about 25% so far this year, the worst performance of any tech company with a market cap over $100 billion, according to FactSet data.

That isn't quite the worst performance among cloud software companies, as the whole category faces the same existential fears. But as the largest company in the space, Salesforce has a lot of sway over the industry narrative. Cloud stocks slumped across the board on Thursday as Salesforce shares fell nearly 6% following its fiscal second quarter earnings report, though disappointing reports from smaller peers such as Gitlab, Figma and C3.ai also played a part. KeyBanc Capital analyst Jackson Ader called Salesforce's stock "the linear embodiment of the application software sector" in a note to clients on Thursday.

"No matter what the current state of the company, the narrative is negative and just about impossible to disprove," Ader wrote.

But is it deserved? Salesforce managed to accelerate its year-over-year revenue growth by 2 percentage points in the July-ending quarter compared with the previous three-month period. That is no small feat for a company now generating just under $40 billion a year. The company's adjusted operating margin also hit a new high of 34.3%, beating Wall Street's consensus target.

But 9.8% revenue growth in the latest period is still below the double-digit range Salesforce steadily delivered for many years. The company's projection for current remaining performance obligations -- a measure of contracted revenue not yet recognized -- called for currency-adjusted growth of around 9% year over year for the current quarter. That was considered a disappointment for a period in which the company is pushing its new Agentforce AI offering hard, while also hosting the massive annual Dreamforce conference that Salesforce typically uses to elevate the sales pitch for its products.

Agentforce will be the company's key out of the doghouse. The service allows customers to build their own AI agents, which are chatbots enabled to take certain actions on behalf of people. Salesforce launched Agentforce last year and says it has since amassed more than 6,000 paying customers.

But how much those customers are actually paying remains a question, since the company's overall revenue growth remains mired in single-digit territory. Karl Keirstead of UBS says investors need "more tangible proof points" that Salesforce's growth will return to a double-digit range in order to come back to the stock.

Salesforce rejuvenating its growth with AI offerings would also go a long way toward improving sentiment for the rest of the cloud software sector. "We believe that platform vendors like Salesforce are positioned to deliver AI functionalities and monetize them," Mark Moerdler of Bernstein wrote in a report. But that will take time and require patience on the part of investors. In a market driven by AI hype, waiting is the hardest part.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

September 08, 2025 05:30 ET (09:30 GMT)

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